The Future of the New Issues Market

Every MBA program that I have taught in has some Asian students, and in some Asian societies, such as Korea, it is common for a student to give a gift to a teacher at the end of the year. Some Korean students continue this practice when they are students in the U.S., and over the years I have received a number of gifts from students. Most of these gifts fall into the category of trinkets and knick-knacks, and I would guess that the average value of these gifts has been about twenty dollars. I typically accept these gifts when offered, and sometimes I even remember the student’s name. I don’t think that many people would consider my acceptance of these gifts after the end of a semester as unethical behavior. I haven’t been faced with the decision, but what would I do if I was offered a gift of a work of art, a gift worth $200? And what if I could sell this gift (I would wait until after the student graduated and left town, of course), and pocket the $200? Would accepting this gift be unethical? Would it change my behavior? What if the work of art was worth $10,000, but the Korean student let me know in advance of the final exam that he or she only gave gifts to professors in classes where an ‘A’ was received? Would this affect my decisions on what grade to give this student, especially if it turned out the student was right on the borderline between an A and a B when I was making up the grade distribution? What if the student didn’t tell me this in advance, but I had learned from experience that I would receive much more valuable gifts from Korean students if they received high grades? Would it be OK for me to accept significant gifts from students who received high grades if other professors were doing so? In other words, if it was “standard industry practice?” Because this article is about the new issues market, I will not discuss further the ethical problems associated with professors who give high grades to students and receive gifts in return. This article will focus mainly on the initial public offerings (IPOs) of equity securities. I will focus on equity IPOs mainly because this is where almost all of the controversy lies. In particular, there are controversies associated with underwriters who allocate hot IPOs to hedge funds and receive commission business in return. After presenting some statistics concerning IPOs and discussing controversies, the article ends with some policy recommendations.