Date:March 16th,Thurs. 17:15-18:45
Venue: Conference Room 2 (Room #3501) on the 5th floor of Mercury Tower
Speaker:Mr David Frankel （Melbourne Business School)
Title:How to Sell Equity if You Must
(Abstract)
An undersubscribed security issuance deprives an issuer of needed capital, making its securities less valuable. This can give rise to multiple equilibria in the decision to subscribe. Under weak assumptions, the issuer must underprice its security in order to induce investors to subscribe. In this setting, standard debt minimizes underpricing and is optimal for the issuer. If the capital target is not too large, equity underpricing can be eliminated with a bonus share scheme that gives subscribers more shares when fewer subscribe.
JEL: G12, G14, G32.
Key Words:Security Design, Debt, Initial Public Offerings, Security Issuances, Undersubscription Risk, Strategic Risk, Underpricing, Equilibrium Selection, Bonus Shares.
