The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Stabilization Activities by Underwriters after Initial Public Offerings
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00241
Reena Aggarwal
Prior research has assumed that underwriters post a stabilizing bid in the aftermarket. We find instead that aftermarket activities are less transparent and include stimulating demand through short covering and restricting supply by penalizing the flipping of shares. In more than half of IPOs, a short position of an average 10.75 percent of shares offered is covered in 22 transactions over 16.6 days in the aftermarket, resulting in a loss of 3.61 percent of underwriting fees. Underwriters manage price support activities by using a combination of aftermarket short covering, penalty bids, and the selective use of the overallotment option.
Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00312
Reena Aggarwal, Pat Conroy
We examine the price discovery process of initial public offerings (IPOs) using a unique dataset. The first quote entered by the lead underwriter in the five‐minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO.
Institutional Allocation in Initial Public Offerings: Empirical Evidence
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00465
Reena Aggarwal, Nagpurnanand R. Prabhala, Manju Puri
We analyze institutional allocation in initial public offerings (IPOs) using a new data set of U.S. offerings between 1997 and 1998. We document a positive relationship between institutional allocation and day one IPO returns. This is partly explained by the practice of giving institutions more shares in IPOs with strong premarket demand, consistent with book‐building theories. However, institutional allocation also contains private information about first‐day IPO returns not reflected in premarket demand and other public information. Our evidence supports book‐building theories of IPO underpricing, but suggests that institutional allocation in underpriced issues is in excess of that explained by book‐building alone.
The Role of Institutional Investors in Voting: Evidence from the Securities Lending Market
Published: 05/01/2015 | DOI: 10.1111/jofi.12284
REENA AGGARWAL, PEDRO A. C. SAFFI, JASON STURGESS
This paper investigates voting preferences of institutional investors using the unique setting of the securities lending market. Investors restrict lendable supply and/or recall loaned shares prior to the proxy record date to exercise voting rights. Recall is higher for investors with greater incentives to monitor, for firms with poor performance or weak governance, and for proposals where returns to governance are likely higher. At the subsequent vote, recall is associated with less support for management and more support for shareholder proposals. Our results indicate that institutions value their vote and use the proxy process to affect corporate governance.
The Equity Performance of Firms Emerging from Bankruptcy
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00169
Allan C. Eberhart, Edward I. Altman, Reena Aggarwal
This study assesses the stock return performance of 131 firms emerging from Chapter 11. Using differing estimates of expected returns, we consistently find evidence of large, positive excess returns in 200 days of returns following emergence. We also examine the reaction of our sample firms' equity returns to their earnings announcements after emergence from Chapter 11. The positive and significant reactions suggest that our results are driven by the market's expectational errors, not mismeasurement of risk. The results provide an interesting contrast, but not a contradiction, to previous work that has documented poor operating performance for firms emerging from Chapter 11.