INITIAL PUBLIC OFFERINGS: GOING BY THE BOOK

In the U.S., and increasingly in other countries as well, IPO securities are marketed to investors in a process known as "book-building"—one that amounts to polling institutional investors to establish a demand schedule for the issue and then allotting stock to individual investors according to the strength of their professed interest. Although book-building methods require use of discriminatory tactics that have attracted strong criticism from investors and regulators, this article defends such practices by demonstrating that book-building is more efficient than alternative methods. It effectively allows issuers to increase the net proceeds of their offerings by making better use of information about market demand conditions.
In the process of explaining the efficiency of the book-building method, this article also offers a plausible explanation for a phenomenon that has long puzzled economists: the systematic underpricing of IPOs. The key to the success of a book-building effort lies in the use of a strategic pricing and allocation policy designed to offset the investor's incentive to understate his or her interest in an IPO. By committing to favor investors who provide strong indications of interest with relatively large allocations of underpriced shares, the investment bank can limit the distortion of investor's incentives in bidding and so increase the level of proceeds the issuing firm can expect to generate from its IPO.     

Testing for a Structural Change in U.S. Wage Determination

Previous tests for structural changes (slope changes) and shifts (intercept changes) in the Phillips curve and union wage determination specify the date of structural change a priori. This article tests for structural changes and shifts without specifying the change point ex ante . The results support the belief that structural changes occurred in the early 1980s. Contrary to some previous research, however, the results do not support a structural shift in the Phillips curve.     

Linking of U.S. monetary policy and exchange rates to world soybean markets

The linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists. This paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the United States, Brazil, and Argentina in the EC-12 and Japan import markets. It is argued that U.S. monetary growth may have important impacts on the competitive position of U.S. soybean exports through exchange rates. Two relationships are investigated: (a) the effects of U.S. monetary growth on the agricultural trade weighted exchange rates, and (b) the responsiveness of agricultural commodity prices and U.S. exports to exchange rate movements. Results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both U.S. and Brazil/Argentina exports in the long run. However, during periods of more expansionary U.S. monetary policy there is little evidence of significant increases in market share position for U.S. soybeans and soymeal in world markets.     

Information,Asset Prices,and the Volume of Trade

A dynamic equilibrium model is constructed in which agents with access to different information sets participate in the capital market. Agents must use the equilibrium price of capital to make optimal forecasts of the return to holding capital. Examples show that the volume of trade, as well as the price of capital, can be highly correlated with a measure of the information content of prices. This measure of information is the difference between the unconditional entropy of the dividend and the entropy of the dividend conditional on observing the price of capital.     

Extensification of agriculture and deforestation: empirical evidence from Sudan

Extensification of agriculture is one of the major factors contributing to the destruction of forests in Africa. In Sudan, such horizontal expansion comes at the expense of land devoted to trees and other vegetation, thereby inducing conditions that are inimical to sustainable agricultural production. Different factors have contributed to extensification. Although high economic returns from crop (mainly sorghum) production was an important factor encouraging extensification of rainfed mechanized farming, other factors outside agriculture have also contributed to that expansion. This paper uses data from eastern Sudan and an acreage response model, to identify the most important factors influencing acreage expansion. Different measures and forms of risk were used in the acreage response model. The paper shows how policies in the energy sector can indirectly influence acreage expansion in the agricultural sector.     

A conceptual framework of anonymity in Group Support Systems

As the development and use of automated systems for collaborative work grows, the need for a better understanding of these systems becomes more important. Our focus is on one type of system, a Group Support System (GSS) and, in particular, on one important aspect of a GSS—anonymity. A conceptual framework for the study of anonymity in a GSS is presented, which describes the general classes of variables and their relationships. These variables include the factors that influence anonymity in a GSS, types of anonymity, and the effects of anonymity on a message sender, receiver, group process, and outcome. Each of these variables is discussed with working propositions presented for important group process and outcome measures. The objectives of this article are to highlight the importance and complexity of anonymity, to act as a guide for empirical investigations of anonymity, and to influence future GSS development and use.     

Report on Business Ethics in North America

Although many challenges remain, business ethics is flourishing in North America. Prominent organizations give annual business ethics awards, investments in socially screened mutual funds are increasing, ethics officers and corporate ombudspersons are more common and more influential, and new ideas are being tested in practice. On the academic side, two major journals specializing in business ethics are well-established and other major journals often include articles on business ethics and new organizations emphasizing ethics have been initiated. Within business schools, the number of endowed chairs is growing and the ethics curriculum is expanding. Canada is a major player in the business ethics discipline while business ethics in Mexico is just beginning to emerge as a focus of interest in both the business and academic communities.     

Correlates of organizational effectiveness: A multilevel analysis of a multidimensional outcome

This paper explores the relationship between environmental scarcity, organization size, and board composition with measures of financial and social performance. All three correlates were found to be related to both measures of performance and the hypotheses were largely supported. Anomalous relationships, however, were found between organizational size and social performance as well as outsider representation and financial performance. This study demonstrates that normative explorations focusing only on financial performance can lead to misleading conclusions about organizational effectiveness.William Q. Judge is currently an assistant professor of strategic management at the University of Tennessee at Knoxville. He is continuing his research in the areas of organizational effectiveness, stakeholder management, and corporate governance.     

On optimal investiment strategies

Suppose an investor has a fixed decision horizon and an appropriate utility function for measuring his or her utility of wealth. If there are only two investment vehicles, a risky and a risk-free asset, then the optimal investment strategy is such that, at any time, the amount invested in the risky asset must be the product of his or her “current risk tolerance” and the risk premium on the risky asset, divided by the square of the diffusion coefficient of the risky asset. In the case of more than one risky asset, the optimal investment strategy is similar, with the ratios of the amounts invested in the different risky assets being constant over time.