Local underwriter oligopolies and IPO underpricing

We develop a theory of initial public offering (IPO) underpricing based on differentiated underwriting services and localized competition. Even though a large number of investment banks compete for IPOs, if issuers care about non-price dimensions of underwriting, then the industry structure is best characterized as a series of local oligopolies. We test our model implications on all-star analyst coverage, industry expertise, and other non-price dimensions. Furthermore, we posit that venture capitalists (VCs) are especially focused on all-star analyst coverage, and develop the analyst lust theory of the underpricing of VC-backed IPOs. Consistent with this theory, we find that VC-backed IPOs are much more underpriced when they have coverage from an all-star analyst.     

Organizational relationship termination competence: A conceptualization and an empirical test

Most firms are involved in a number of customer relationships that drain the firm's resources. However, many firms are hesitant to address this problem. This paper investigates customer relationship termination at the organizational level. We develop and analyze the organizational dimensions of organizational termination in order to improve our understanding of the management of termination. The impact of these termination dimensions on the percentage of unwanted customers is developed and tested using PLS on data gathered from a cross-sectional survey of more than 800 sales representatives. We find that a firm's percentage of unwanted customers decreases significantly as acceptance of termination increases, if the firm's definition of unwanted customers is well understood, and if a firm has clear termination routines. In addition, general focus on profitability and external constraints on relationship termination are found to significantly affect a firm's relationship termination competence. The findings suggest that managers should regard termination as a legitimate option in customer relationship management. In order to decrease the number of unwanted customers, managers must accept termination as a valid option, clearly define the types of customers that the organization does not want to serve, and implement termination routines within the organization.     

The Seven Percent Solution

Gross spreads received by underwriters on initial public offerings (IPOs) in the United States are much higher than in other countries. Furthermore, in recent years more than 90 percent of deals raising $20-80 million have spreads of exactly seven percent, three times the proportion of a decade earlier. Investment bankers readily admit that the IPO business is very profitable, and that they avoid competing on fees because they 'don't want to turn it into a commodity business.' We examine several features of the IPO underwriting business that result in a market structure where spreads are high.     

Decentralized credit and monetary exchange without public record keeping

Summary. We relax a standard assumption on the matching technology in a search model of money. In particular, agents may remain in a long-term partnership as long as it is in their self-interest. With this simple modification, it is possible to support self-enforcing, intertemporal trade which resembles credit without a public record keeping device. We examine conditions for co-existence of currency and credit and the welfare gains/losses associated with the introduction of money.Received: 20 April 2003, Revised: 10 July 2003JEL Classification Numbers: E0.An earlier version of this paper was entitled Money and Search with Enduring Relationships. We wish to thank Narayana Kocherlakota, Rachel Kranton, Jeff Lacker, Andrei Shevchenko, Shouyong Shi, Ted Temzelides, Chris Waller, and especially David Andofolatto, Gabriele Camera, Drew Saunders, and Randy Wright for helpful comments on that earlier draft, as well as seminar participants at the University of Pennsylvania, Purdue University, American Economic Association Meetings, Summer Econometric Society Meetings, and NBER Summer Workshop. Corbae wishes to thank the Research Department at the Federal Reserve Bank of St. Louis for research support.Correspondence to: D. Corbae     

Dynamics of relationships and networks — creation, maintenance and destruction as managerial challenges

This paper introduces the topic of dynamics in business networks as the overarching theme of the special issue. We first discuss the nature of stability and change in business relationships and industrial networks. Then, we highlight the paradox that stability and change are not opposing ends of a scale but co-existing and influencing each other. Finally, the contributions of this special issue are presented.     

Business relationships on different waves: Paradigm shift and marketing orientation revisited

Relationships with customers, also referred to as inter-organizational relationships, are a growing theme in marketing. The increased interest in these concepts has triggered views that a paradigm shift from mass marketing toward relationship marketing has taken place over the last 20 years and that only a relationship orientation secures firms' success. In this paper, we promote the idea that relationships exist along different orientations and paradigms. We identify five different orientations and the logic of a buyer-supplier relationship in each of these waves. Furthermore, we argue for a dyadic view of orientation, i.e., the supplier orientation must match the buyer orientation in order to allow smooth interactions.     

Growth Capital‐Backed IPOs

Growth capital investing is the financing of growing businesses that are investing in tangible assets and the acquisition of other companies. Growth capital is common in retailing, restaurant chains, and health care management, and represents 12% of all venture capital (VC)‐backed initial public offerings (IPOs). Since 1980, investing in growth capital‐backed IPOs has produced mean three‐year style‐adjusted buy‐and‐hold returns of +25.2%, in contrast to style‐adjusted returns of approximately zero for other VC‐backed and buyout‐backed IPOs. One‐third of growth capital‐backed IPOs are rollups and these have produced much higher returns for investors than rollups without a financial sponsor.