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Who Failed to Go Public with Best Efforts Offerings

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  • Sung-Il Cho

    (Korea Information Society Development Institute, Seoul)

Abstract

This paper presents evidence on the failed initial public offerings that used best efforts contracts. Out of 732 best efforts IPOs attempted in 1980-84, 186 IPOs (about one fourth) failed to meet minimum sales requirement and were subsequently withdrawn. Offerings with greater uncertainty about their true value failed more frequently. The failure rate was not significantly different between “all or none” type offerings and “minimum and maximum” type offerings. Regional investment bankers managed the most of best efforts IPOs and the average underpricing of their offerings was smaller than that of offerings managed by submajor bracket investment bankers. It is noteworthy that bankers with a record of failed offerings did not seem to lose their future business and relatively small issuing firms continued to rely on these bankers to go public.

Suggested Citation

  • Sung-Il Cho, 1993. "Who Failed to Go Public with Best Efforts Offerings," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 3(1), pages 63-77, Fall.
    • Handle: RePEc:pep:journl:v:3:y:1993:i:1:p:63-77
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    References listed on IDEAS

    as
    1. Mark Grinblatt & Chuan Yang Hwang, "undated". "Signalling and the Pricing of Unseasoned New Issues," Rodney L. White Center for Financial Research Working Papers 1-89, Wharton School Rodney L. White Center for Financial Research.
    2. Welch, Ivo, 1992. "Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    3. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
    4. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
    5. Welch, Ivo, 1991. "An Empirical Examination of Models of Contract Choice in Initial Public Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(4), pages 497-518, December.
    6. repec:bla:jfinan:v:44:y:1989:i:2:p:421-49 is not listed on IDEAS
    7. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
    8. repec:bla:jfinan:v:44:y:1989:i:2:p:393-420 is not listed on IDEAS
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    Cited by:

    1. Cho, Sung-II, 2001. "A model for IPO pricing and contract choice decision," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(3), pages 347-364.

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    More about this item

    Keywords

    IPO; Initial Public Offering; Best Efforts;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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