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- The Reasons for the Divergence of IPO Lockup Agreements
- Most initial public offerings (IPOs) feature share lockup agreements, which prohibit insiders from selling their shares for a specified period of time following the IPO. However, some IPO firms agree to have a much longer lockup period than other IPO firms, and some are willing to lockup a much larger proportion of shares. Thus, the primary research question for this study is: "What are the reasons for the divergence of the lockup agreements?" The two main hypotheses that this dissertation investigates are the signaling hypothesis based on information asymmetry, and the commitment hypothesis based on agency theory. This study uses methods that have not been applied by previous studies in the literature relating to IPO lockups. First, I directly use IPO firms operating performance as a proxy for firm quality. The results show neither a negative nor a strong positive relationship between lockup length and firm operating performance. Thus, based on operating performance, the evidence does not support the agency hypothesis while showing weak support for the signaling hypothesis. I then examine the long-run returns for IPO firms with different lockup lengths. I find that firms with short lockup lengths have much better long-run returns than firms with long lockup lengths. Therefore, the results reject the signaling hypothesis while supporting the agency hypothesis. This dissertation further contributes to the IPO long-run underperformance literature by showing that firms with a high agency problem have much worse long-run returns than those with a low agency problem. Finally, I investigate the short-term stock returns around lockup expiry. Generally, I find that firms with short lockup periods experience better stock returns around lockup expiry than firms with long lockup periods, though the returns are not significantly different from one another. Overall, I conclude that the results reject the signaling hypothesis while partially supporting the agency hypothesis. In addition, I show that firms with high agency problems have much worse stock returns than those with low agency problems around lockup expiry, even though the agency variable is not significant in the regression analysis.
- Risk Management And Market Efficiency On The Midwest Independent System Operator Electricity Exchange.
- Midwest Independent Transmission System Operator, Inc. (MISO) is a non-profit regional transmission organization (RTO) that oversees electricity production and transmission across thirteen states and one Canadian province. MISO also operates an electronic exchange for buying and selling electricity for each of its five regional hubs. MISO oversees two types of markets. The forward market, which is referred to as the day-ahead (DA) market, allows market participants to place demand bids and supply offers on electricity to be delivered at a specified hour the following day. The equilibrium price, known as the locational marginal price (LMP), is determined by MISO after receiving sale offers and purchase bids from market participants. MISO also coordinates a spot market, which is known as the real-time (RT) market. Traders in the real-time market must submit bids and offers by thirty minutes prior to the hour for which the trade will be executed. After receiving purchase and sale offers for a given hour in the real time market, MISO then determines the LMP for that particular hour. The existence of the DA and RT markets allows producers and retailers to hedge against the large fluctuations that are common in electricity prices. Hedge ratios on the MISO exchange are estimated using various techniques. No hedge ratio technique examined consistently outperforms the unhedged portfolio in terms of variance reduction. Consequently, none of the hedge ratio methods in this study meet the general interpretation of FASB guidelines for a highly effective hedge. One of the major goals of deregulation is to bring about competition and increased efficiency in electricity markets. Previous research suggests that electricity exchanges may not be weak-form market efficient. A simple moving average trading rule is found to produce statistically and economically significant profits on the MISO exchange. This could call the long-term survivability of the MISO exchange into question.
- Time Series Analysis of Going Private Transactions: Before and after the Sarbanes-Oxley Act
- Using 1,473 going private transactions completed between 1985 and 2007, I assess whether the increase in going private transactions that occurred after the passage of the Sarbanes-Oxley Act of 2002 (SOX) was driven by SOX, or whether this phenomenon continues an ongoing historical trend. To examine this issue, I initially used structural break tests and intervention analysis. From the initial techniques, I find support that the passage of SOX increased going private transactions for these categories. Secondarily, I use Granger causality tests and impulse response functions to examine the link between going private transactions and the public stock market. When I categorize going private transactions according to the type of acquirer, transaction size, and target industry, I find bi-directional Granger causality relationships between smaller-sized going private transactions and the S&P 500 Index (or Tobin's Q). I also find several unidirectional Granger causality relationships for some categories of going private transactions, based on the type of acquirer or the target industry, to the S&P 500 Index (or to Tobin's Q). The impulse response of going private transactions (or the public stock market) to a shock in the public stock market (or going private transactions) is not immediate, but is delayed two to three quarters. The link between going private transactions and the public stock market is an ongoing phenomenon, continuing a historical trend for going private transactions. For going private transactions with structural breaks, SOX affects the linkage but not for going private transactions with no structural break.