Unit initial public offerings: A form of staged financing

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Abstract

Units are bundles of common stock and warrants. By selling initial public offerings (IPOs) of units, firms precommit to sell more stock in the future at the warrant's exercise price. Sequential offerings of this type reduce the agency costs of giving management a potential free cash flow at the IPO. Consistent with this theory, firms that choose unit IPOs are smaller, have less income and assets in relation to their IPO proceeds, and are less likely to survive than firms that issue shares.

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    Relationship specific assets and the pricing of underwriter services

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    Helpful comments were received from Craig Dunbar, Margaret Forster, Thomas George, Kathleen Hanley, Chuan Yang Hwang, Francis Longstaff, Jay Ritter, Michael Vetsuypens, Ralph Walkling, David Williams, and Justin Wood. Clifford Smith (the editor) and Christopher James (the referee) provided suggestions that significantly improved the paper. Richard Carter graciously allowed his updated underwriter rankings to be used here. Excellent research assistance was provided by Jeffrey Harris. The staff of the Arthur Andersen Library in Chicago deserve special thanks for their assistance. All errors are the responsibility of the author.

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