Initial Public Offering Underpricing: The Issuer's View—A Comment

I consider the underpricing of initial public offerings (IPOs) and the wealth transfers implicit in that underpricing. I find that initial returns properly measure the “issue cost” effect of underpricing as a fraction of offer size, as in Ritter (1987) . I present a measure of the wealth effect of underpricing per share retained. In general, the wealth effects on existing shareholders depend on the extent to which they participate in the offering. From the perspective of issuer's wealth, I find that Dawson's (1987) measure is appropriate only in the special case in which all of the prior owners'; shares are sold in the IPO.     

Economic Viewpoint

The search for a policy device which will yield the benefits of monetary discipline without the pain is as old as it is fruitless, and the central message of this Economic Viewpoint is that going into the EMS will not provide a magic answer to our problems. However we believe that if we go into the EMS at today's rate, and pursue monetary policies consistent with maintaining that rate, the authorities' target of 3 per cent inflation by 1988 is well within reach… Our analysis of the experience of other countries, inside and outside the EMS, over the floating rate period suggests that membership of the EMS should also reduce exchange rate fluctuations and help to create a more stable environment for business planning. However, sterling's vulnerability to oil-related fluctuations cannot be eliminated just by joining the EMS. We therefore suggest that an oil bond, which capitalises the value of our North Sea assets, is created and sold to our EMS partners, thus equalising the exposure to fluctuations in oil prices and removing one major cause of exchange rate instability.     

THE POLITICAL ECONOMY OF EUROPEAN MONETARY UNIFICATION: AN ANALYTICAL INTRODUCTION

European monetary unification (EMU) - the creation of a single European currency and a European Central Bank - is both an economic and a political phenomenon. Yet few studies have attempted to address simultaneously the political and economic dimensions of the process. In this introduction, we review and extend the relevant literatures. The evidence leads us to conclude that EMU is driven mainly by political rather than economic factors, although our understanding of even these political forces remains incomplete.