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Modeling the time to an initial public offering: When does the fruit ripen?

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  • Yamin Ahmad

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  • Russell Kashian

    ()

Abstract

This paper investigates the characteristics possessed by credit unions who have converted to mutual savings institutions, which might lead them to demutualize and become publicly traded banks. We adopt a duration model framework to examine these characteristics. Our key findings are as follows. First, we find evidence of positive duration dependence in the data we examine. Second, we find that the hazard of an IPO issue increases in two waves. The first occurs between three and a half to four years reflecting the increased transition intensity for those who wish to demutualize early. However, the majority of the institutions in our sample do so by approximately eight years after conversion, and this is where the second spike in the hazard occurs. Finally, upon estimating the model with Cox’s (1975) semi-parametric partial likelihood approach, we find the probability that a converted institution will issue an IPO is influenced to a large extent by various measures that capture asset quality, in particular through measures that are equity driven. However, contrary to what one might expect, we find that total assets do not appear to influence the hazard rate.

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Bibliographic Info

Article provided by Springer in its journal Journal of Economics and Finance.

Volume (Year): 34 (2010)
Issue (Month): 4 (October)
Pages: 391-414

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Handle: RePEc:spr:jecfin:v:34:y:2010:i:4:p:391-414

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Web page: http://link.springer.de/link/service/journals/120857/index.htm

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Related research

Keywords: Credit Unions; Demutualization; Hazard Analysis; IPO; C41; G20; G21; L33;

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References

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  1. Peristiani, Stavros & Wizman, Thierry A., 1997. "Mutual-to-stock conversions in the thrift industry in the 1990s," Journal of Economics and Business, Elsevier, vol. 49(2), pages 95-116.
  2. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
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  14. Haluk Unal, 1997. "Regulatory Misconceptions in Pricing Thrift Conversions: A Closer Look at the Appraisal Process," Journal of Financial Services Research, Springer, vol. 11(3), pages 239-254, June.
  15. Robert M. Feinberg & A.F.M. Ataur Rahman, 2006. "Are Credit Unions Just Small Banks? Determinants of Loan Rates in Local Consumer Lending Markets," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 647-659, Fall.
  16. Masulis, Ronald W., 1987. "Changes in ownership structure : Conversions of mutual savings and loans to stock charter," Journal of Financial Economics, Elsevier, vol. 18(1), pages 29-59, March.
  17. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1998. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-007, New York University, Leonard N. Stern School of Business-.
  18. Kennan, John, 1985. "The duration of contract strikes in U.S. manufacturing," Journal of Econometrics, Elsevier, vol. 28(1), pages 5-28, April.
  19. Fabio Panetta & Dario Focarelli, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Italian Market for Bank Deposits," CEIS Research Paper 10, Tor Vergata University, CEIS.
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