Corporate Finance: Assessed assignment Answer the following question with no more than 2000 words a)...

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Corporate Finance: Assessed assignment Answer the following question with no more than 2000 words a) The IPO process is characterised by information asymmetries. Explain how these asymmetries may be reduced through the book-building process. b) Researchers have noticed that IPOs tend to be under-priced in the short-term and to under-perform in the long-term. Explain how under-pricing and under-performance are measured in empirical studies and explain why these phenomena are observed c) Why might a company choose to list overseas? d) Companies that are listed on the London Stock Exchange must comply with, or give reasons for their non-compliance with the UK Code of Corporate Governance. Briefly explain the Code’s requirements with respect to independent directors. Do you believe that these requirements deter relatively small companies from seeking a listing? Explain your response. Marking guidelines Please Note: • You need to reference using Harvard style, footnote and In-Text Referencing • Try to use variety of sources such as books, articles, charts and newspapers…etc • Proper English grammar writing skills • . You should write no more than 2000 words on this assignment.
Part Required Marks available (a) Explanation of the term “information asymmetries” Description of book-building process Explanation of how the process reduces information asymmetries 10 10 10 (b) Explanation of measurement of under-pricing Explanation of measurement of under-performance Reasons for observing these phenomena (references to relevant literature required to get full marks here) 8 7 15 (c) Explanation of reasons for overseas listing 15 (d) Explanation of requirements Discussion of their possible deterrent effects 12 13

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Corporate Finance: Assessed assignment Answer the following question with no more than 2000 words a) The IPO process is characterised by information asymmetries. Explain how these asymmetries may be reduced through the book--building process. b) Researchers have noticed that IPOs tend to be under--priced in the short--term and to under--perform in the long--term. Explain how under--pricing and under--performance are measured in empirical studies and explain why these phenomena are observed c) Why might a company choose to list overseas? d) Companies that are listed on the London Stock Exchange must comply with, or give reasons for their non--compliance with the UK Code of Corporate Governance. Briefly explain the Code’s requirements with respect to independent directors. Do you believe that these requirements deter relatively small companies from seeking a listing? Explain your response. Marking guidelines Please Note: • You need to reference using Harvard style, footnote and In--Text Referencing • Try to use variety of sources such as books, articles, charts and newspapers…etc • Proper English grammar writing skills • . You should write no more than 2000 words on this assignment. Part Required Marks available (a) Explanation of the term “information asymmetries” 10 Description of...

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Robert · Accepted Answer

Table of Contents 
Solution 1 ...................................................................................................................................................... 1 
What is IPO? .............................................................................................................................................. 2 
Information Asymmetry ............................................................................................................................ 2 
Book Building Process ............................................................................................................................... 2 
How it reduces Information Asymmetry? ................................................................................................. 3 
More Loyal Type of Investors comes through this type of Auction .......................................................... 3 
Example:- Google .......................................................................................................................................... 3 
Example - Morning Star ............................................................................................................................ 4 
Solution 2 ...................................................................................................................................................... 5 
Under pricing and Its Reason .................................................................................................................... 5 
Underperformance in the Long Term ....................................................................................................... 5 
Solution 3 ...................................................................................................................................................... 6 
What is listing? .......................................................................................................................................... 6 
Why Foreign Listing? ................................................................................................................................. 7 
Solution 4 ...................................................................................................................................................... 8 
What is Corporate Governance law at LSE? ............................................................................................. 8 
References .................................................................................................................................................... 9
The IPO process is characterized by information asymmetries. Explain how these 
asymmetries may be reduced through the book building process. 
Solution 1 
 
What is IPO? 
An initial public offer (IPO) can be defined as the selling of securities by companies that are 
not listed in the primary market. It can be because of sale of already existing securities or a 
fresh issue of securities which are both made to the public for the first time. (Hensel, 
Nayantara, 2005) 
Information Asymmetry 
Information asymmetries are common phenomenon observed in an IPO where different 
investors have access to different information. Generally, In an IPO process the large 
institutional investors has undue advantage as they have more information compare to the 
small retail investors. Hence, Information asymmetries help the large institutional investors 
to take undue advantage of the IPO. (Hensel, Nayantara, 2005)
Book Building Process 
Any company has two options to go for IPO that is to go with online auction or to go with 
traditional method. The online auction is also called as book building process. Looking after 
the current trends and the success that Morning star achieved, Book building is a better 
process. .(Edmonston,Peter,2009) 
It is better than the traditional one as it relies on the fundamental forces of supply which is 
actually the no. of shares offered to the investors and the demand i.e. the no. of shares 
required by the investors. The benefits of this approach will be that it will avoid the first day 
unwanted rise in the price which the market seen umpteen times during the dotcom era. By 
opting for this method, it will help by generating a demand curve for all the IPO from the 
small investors and also allowing him to participate in the price. This will help to bring truer 
and more accurate price by bringing all people responsible for the share price on the same 
boat. It helps the  company in the long run in the way that  it will ensure that  that the full 
value of the IPO goes to the company that is going public, rather than favoring clients of the 
Investment Bank, underwriting the IPO. This is also one of the reason why underwriters 
don’t like this method ,

Corporate Finance: Assessed assignment Answer the following question with no more than 2000 words a) The IPO process is characterised by information asymmetries. Explain how these asymmetries may be...

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