The day of the week effect in IPO initial returns

Monday IPOs occur infrequently and have higher mean initial returns than those issued on other days. The latter result is not a product of outliers or penny stocks and remains after controlling for factors related to IPO underpricing. The Monday effect is generally robust across time, but during 1995–2003 is present only in IPOs with their first reported trade on their offer date. Volume patterns suggest Monday IPOs come to market later in the day, which has been linked to higher initial returns. We argue that the observed patterns are consistent with the incentives of underwriters and investors.     

Emerging life sciences ventures: The quest for legitimacy

As an emerging life sciences venture, gaining legitimacy (credibility) with external stakeholders (e.g., investors) is a critical challenge in today's environment. This quest for legitimacy relates to issues that focus on the individual, the environment, and the process. Integrating insights gained from interviews with three CEOs of life sciences companies along with the academic literature, we provide guidance for entrepreneurs regarding the unique challenges facing life sciences ventures. We propose that these ventures are driven by a “quest for legitimacy” and that life sciences entrepreneurs therefore must be aware of the strategic issues which impact legitimacy in the eyes of external stakeholders (e.g., investors).     

Bailing outsourcing

In a model of organizational choice, this paper shows that in face of an increasingly expected bailout from the government, outsourcing input production to an offshore location is more likely an optimal choice for a firm. Such a response is consistent with the three trends in the US manufacturing sector after the crisis: (a) employment keeps declining; (b) massive layoffs have not stopped; and (c) imported intermediate inputs have been gaining importance.     

Agricultural Producer Price Expectations

Producer price expectations underlie much of agricultural supply analysis. While producer price expectations would ideally be discovered experimentally, this is too costly. Instead, producer price expectations are usually represented in agricultural supply analysis by easily obtained hypothesized expectation formulations. In most cases, the hypothesized expectation formulations are functions of past prices. However, other formulations are sometimes used, such as current cash and futures prices, or initial payments in the case of grains marketed by the Canadian Wheat Board. This paper compares actual producer price expectations with a variety of hypothesized expectation formulations for wheat and canola in Saskatchewan. A test developed by Granger is used to determine the proxy models that are significantly dominant. The model that dominates as a proxy in the case of wheat price expectations is the two-year declining-weight moving average. The two models that dominate as a proxy in the case of canola price expectations are the first-order autoregressive and, as well, the two-year declining-weight moving average. There is no significant difference between the two models. Somewhat surprising is the performance of formulations based on futures prices. These formulations perform very poorly in representing producers' price expectations, even though they are found to be among the most accurate predictors of actual commodity prices. An even more interesting observation is the performance of the futures price model in the canola market. Even though the November contract in January explains very little of the variation in the actual commodity prices for that year, its error in predicting canola prices is not significantly greater than that of the best performing, the four-year declining-weight moving average, based upon the root mean squared error criterion.     

Capacity overhang and corporate disinvestment decisions

We use a stochastic frontier model to estimate a firm's capacity overhang. We find that excess capacity is positively related to a drop in new capital expenditures, an accumulation of depleted long-term assets, and outright sales of investment assets. However, the sale of long-term assets (property, plant, and equipment [PP&E]) peaks for intermediate levels of excess capacity and then declines. We attribute this to growth options. We test for evidence of a preference ordering in the firm's choice of responding to excess capacity and find evidence for a pecking order in firm disinvestment, where sales of long-term assets are a measure of last resort.