Published PapersBubna, Amit.,Prabhala, N R. (2011) "IPOs With and Without Allocation Discretion: Empirical Evidence", Journal of Financial Intermediation, 20, 530-561Read Abstract >Close >Book building is the dominant offering mechanism for IPOs in the U.S. and other markets. It is controversial, in large part because it gives underwriters extensive power over IPO allocations. Critics argue that allocations could be abused to generate kickbacks for underwriters while proponents hold that allocation power could improve pre-market price discovery. We examine the effect of varying underwriter power over IPO allocations in the Indian IPO market, exploiting natural variation induced by market regulations. When underwriters control allocations, book building is associated with lesser under-pricing, but this effect quickly dissipates when regulations withdraw allocation powers. Using proprietary data sets on IPO books, we examine how underwriters use allocation powers. We …find that allocation discrimination is pervasive, economically significant, and is used to differentiate between institutional bidders based on the size of the bid as well as non-bid information such as the type of the bidder and other soft information possessed by IPO managers. Our evidence supports book building theories in which giving underwriters allocation powers assists in pre-market price discovery.

Published PapersSubramanian, Krishnamurthy., Viral V Acharya. (2009) "Bankruptcy Codes and Innovation", Review of Financial Studies, 22 (12), 4949-4988Read Abstract >Close >We consider the investment and financing choices of a firm as a function of the bankruptcy code under which it operates. We model investment as a choice between innovative exploration and pursuit of tried-and-tested strategy, and financing as the choice of leverage given the tradeoff between its tax benefits and deadweight costs in bankruptcy. Deadweight costs in bankruptcy arise due to creditors’ preference for liquidating assets or that of debtors in excessively continuing with assets, and their severity depends upon the nature of investment as well as on the relative creditor-friendly or debtor-friendly nature of the bankruptcy code. We show that under mild parametric restrictions, stronger creditor rights result in lower value and lower leverage-based financing of innovative investments relative to triedand- tested strategies.

Published PapersSonti, Ramana., Naveen Khanna, Thomas H Noe. (2008) "Good IPOs draw in bad: Inelastic banking capacity and hot markets", Review of Financial Studies, 21 (5), 1873-1906Read Abstract >Close >We posit that screening IPOs requires specialized labor which is in fixed supply. A sudden increase in demand for IPO financing increases the compensation of IPO screening labor. This results in reduced screening, encouraging sub-marginal firms to enter the IPO market, further fueling the demand for screening labor. The model’s conclusions are consistent with empirical findings of increased underpricing during hot markets, positive correlation between issue volume and underpricing, and with tipping points between hot and cold markets. Finally, the model makes sharp predictions relating the IPO market to fundamental values of firms and to investment banking returns. (JEL G20, G24)

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