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Modeling the Time to an Initial Public Offering: When does the Fruit Ripen?

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  • Yamin Ahmad

    ()
    (Department of Economics, University of Wisconsin - Whitewater)

  • Russell Kashian

    ()
    (Department of Economics, University of Wisconsin - Whitewater)

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

Paper provided by UW-Whitewater, Department of Economics in its series Working Papers with number 08-01.

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Length: 37 pages
Date of creation: Apr 2008
Date of revision:
Publication status: published in Journal of Economics and Finance, 34 (4), October 2010, pp. 391 - 414.
Handle: RePEc:uww:wpaper:08-01

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Postal: Whitewater, WI 53190-1750
Phone: (414) 472-1361
Web page: http://www.uww.edu/cobe/economics/main.html
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Keywords: Credit Unions; Demutualization; Hazard Analysis; IPO;

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References

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  1. Robert Feinberg, 2002. "Credit Unions: Fringe Suppliers or Cournot Competitors?," Review of Industrial Organization, Springer, Springer, vol. 20(2), pages 105-113, March.
  2. David C. Wheelock & Paul W. Wilson, 1995. "Why do banks disappear? The determinants of U.S. bank failures and acquisitions," Working Papers, Federal Reserve Bank of St. Louis 1995-013, Federal Reserve Bank of St. Louis.
  3. A. Cole, Rebel & Mehran, Hamid, 1998. "The effect of changes in ownership structure on performance: Evidence from the thrift industry," Journal of Financial Economics, Elsevier, Elsevier, vol. 50(3), pages 291-317, December.
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  5. Aruna Srinivasan & B. Frank King, 1998. "Credit union issues," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 3, pages 32-41.
  6. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1997. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 97-1, New York University, Leonard N. Stern School of Business-.
  7. Marco Pagano & Fabio Panetta & Luigi Zingales, 1995. "Why Do Companies Go Public? An Empirical Analysis," NBER Working Papers 5367, National Bureau of Economic Research, Inc.
  8. Maksimovic, Vojislav & Unal, Haluk, 1993. " Issue Size Choice and "Underpricing" in Thrift Mutual-to-Stock Conversions," Journal of Finance, American Finance Association, American Finance Association, vol. 48(5), pages 1659-92, December.
  9. Hamid Mehran & Stavros Peristiani, 2010. "Financial Visibility and the Decision to Go Private," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 23(2), pages 519-547, February.
  10. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, American Finance Association, vol. 46(1), pages 3-27, March.
  11. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  12. Randolph P. Beatty & Jay R. Ritter, . "Investment Banking, Reputation and the Underpricing of Initial Public Offerings," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 02-85, Wharton School Rodney L. White Center for Financial Research.
  13. Dario Focarelli & Fabio Panetta, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1152-1172, September.
  14. Peristiani, Stavros & Wizman, Thierry A., 1997. "Mutual-to-stock conversions in the thrift industry in the 1990s," Journal of Economics and Business, Elsevier, Elsevier, vol. 49(2), pages 95-116.
  15. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 50(1), pages 23-51, March.
  16. Kennan, John, 1985. "The duration of contract strikes in U.S. manufacturing," Journal of Econometrics, Elsevier, Elsevier, vol. 28(1), pages 5-28, April.
  17. Haluk Unal, 1997. "Regulatory Misconceptions in Pricing Thrift Conversions: A Closer Look at the Appraisal Process," Journal of Financial Services Research, Springer, Springer, vol. 11(3), pages 239-254, June.
  18. 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.
  19. 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.
  20. Feinberg, Robert M. & Rahman, A. F. M. Ataur, 2001. "A causality test of the relationship between bank and credit union lending rates in local markets," Economics Letters, Elsevier, Elsevier, vol. 71(2), pages 271-275, May.
  21. Masulis, Ronald W., 1987. "Changes in ownership structure : Conversions of mutual savings and loans to stock charter," Journal of Financial Economics, Elsevier, Elsevier, vol. 18(1), pages 29-59, March.
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Cited by:
  1. Kashian, Russell & Cebula, Richard & Cramer, Eric, 2014. "Foreclosures in an Exurb: Multiple Empirical Analyses through a Prism," MPRA Paper 55557, University Library of Munich, Germany.

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