Effect of sugar price increases on food sellers

Effect of sugar price increases on food sellers The consumers in Malaysia have variety of menus for their daily diet, and sugar is one of the most important ingredients. Thus the market of sugar is an important factor to Malaysias economy. At the end of 2009, the government intended to decrease the subsidy of sugar. The purpose of this proposal was to promote a healthier lifestyle.  [1]  The cheap price of sugar has lead to overconsumption. There is 105% increase in overweight or obese Malaysians from 1996 to 2006.  [2]  Early 2010, the government has increased the price of sugar by RM0.20. However the increment was not because of the decrement sugars subsidy but it was because the increase in price of raw commodity.  [3]  In 16th July 2010, government decrease the sugar subsidy by RM0.25. This is one part in Malaysias subsidy rationalisation process. When the price of sugar in Malaysia was being compared to sugar price in other region, it was proven that sugars price in Malaysia is much lowered. Compared to sugar price in Thailand which is RM2.60, Malaysia is only RM1.90. It does not surprise us at all when Malaysias subsidised goods were being smuggled to neighbouring countries.  [4]   The government would have to spend RM1.26 billion if the price of sugar maintain at RM1.45 per kilogram. As the price of sugar had increased to RM1.90 per kilogram, the subsidies now worth almost RM1 billion only. Government only need to spend RM0.80 for every kilogram of sugar.  [5]  The government spending is reduced and through this rationalisation process has gave many benefits to Malaysia which will be discussed later. Although there were many benefits were gained, the increased in sugars price gives large impact to the food industry and the consumers. However, this research will focus on the impacts of increase in sugars price to the small food sellers in Shah Alam. I chose to do this research in Shah Alam mainly because I want to study on how the increase in price of sugar affects an industrial area. In Malaysia, there is only four main sugar factory; one of them is in Shah Alam which is Central Sugar Refinery (CSR). The research would be interesting to conduct, since the supply can easily distribute to the consumers. This factor, in theory, should have created a more efficient market for the food industries. Besides that, increment in price of sugar likely to be happen again in the future time as the government wants to decrease the sugars subsidy gradually. So, by doing this research, I can educate the society to prepare themselves on the consequences that they might face in the future. In the beginning of the research, I am expecting the food sellers in Shah Alam to be slightly affected by the increase in price of sugar. The food sellers will increase the price of their product and the demand of their product will decrease. 2.0 The Research 2.1 Objectives This research main aim is to study the effects of increase in price of sugar to food sellers in Shah Alam. Yet, in completing the investigation, this research has a few objectives that need to be obtain in order to answer the research question. To determine the effect of increase in the price of sugar to its supply, costs and income of the food sellers. To identify the demand of the sugar after the price of sugar has increased. To investigate the causes of sugar shortages in Shah Alam. To investigate the condition and operation of the market of sugar after four months of price of sugar has increased. To find any recommendation on this issue. 2.2 Hypothesis The hypothesis is: In the short run the food sellers in Shah Alam were only slightly affected by the increase in price of sugar. The food sellers will increase the price of their product and the demand of their product will decrease. 2.3 Methods Three methods had been chosen to be used in this research. Each method was done specifically to obtain the objectives that had been set before. Interview The first method chosen is through interview. The interview was done to investigate the supply-side after the price of sugar has increased. It involved ten food sellers and two grocery retailers in Shah Alam and six bakeries had been chosen for the interview. The result is assumed to represent the whole area of Shah Alam. The aim of the interviews is to achieve the first, second, third and fourth objective (2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5). The questions to be asked for interviews can be referred in Appendix A. Surveys Aside than the interview, a survey was done also to achieve the second objective (2.1.2). The survey was in the form of questionnaires and involved residents around Shah Alam which were chosen randomly (Appendix B). Secondary research The last method chosen through the secondary research; which were through internet and library research. This method was conducted to achieve the fourth objective (2.1.4 and 2.1.5). 2.4 Theoretical Framework The theories that support the aims of this study are as below: Theory / Term Definition Law of Demand As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus  [6]  . Law of Supply As the price of product rises, the quantity supplied of the product will usually increase, ceteris paribus. Elasticity of demand A measure of how much the demand of a product changes when there is a change in one of the factors that determine demand. Price elasticity of demand (PED) A measure of how much the quantity demanded of a product changes when there is a change in the price of the product. Elastic demand PED is greater than one and less than infinity. A change in the price of the products leads to a greater than proportionate change in the quantity demanded of it. Inelastic demand The value of PED less than one and greater than zero. A change in the price of the product leads to a proportionally smaller change in the quantity demanded of it. Subsidy An amount of money paid by the government to a firm, per unit of output. 2.5 Scope of Research This research will study the market mechanism of sugar and food around Shah Alam (microeconomics). The demand of sugar is studied to determine whether removal of subsidy has impact on it. This research will focus on the demand side and supply side of food to study the implications of increase in sugars price. 3.0 Data Collection and Analysis The following results obtained from the research done. The results are based on the surveys and interviews that represent the whole community of food sellers and bakers in Shah Alam. 3.1 The supply side of the food market sold by the food sellers The supply curve for the food Effect increment of price of sugar on 1st January to the supply of food: The supply curve of Graph 1 has shifted to left, which caused the lowering supply of food by the food sellers in Shah Alam. The reduction is approximated to be 10%. However, there were 10% increments in the supply of food after four months shown by Graph 2. Average price of food (RM) S2 P2 pP S1 P1 0 Q2 10% Q1 Average quantity of food Graph 1: Supply of food after the price of sugar increased on 1st January 2010 Average price of food (RM) S2 S3 P3 P2 Q2 10% Q3 Average quantity of food Graph 2 : Supply of food after four months of the increment of price of sugar on 1st January 2010 On 16th July 2010, when the price of sugar increased, the food sellers increased their food supply about 25%. The price of food. To take the price of food as example could be difficult because there are ranges of food. Hence I chose Teh Tarik as example. Teh Tarik is a type of drink that is popular in Malaysia. It is actually a type of tea that is made by special technique by Malaysian and being drink by all races in Malaysia. Period of time Before 1st January 2010 1st January 2010 16th July 2010 Price of teh tarik, RM per glass 1.20 1.50 1.80 Table 1: The increase in price of food The price of food continue to increase because to the increment on the cost of production. Income of the food sellers Due to the severity of the situation in the market during the increase in price of sugar, all the income of the food sellers has decreased. The average decrement in income faced by them was 20% after the price of sugar had increased on 1st January. After four months, the average increment in income is 20% back to the equilibrium  [7]  . Then when the price of sugar increased again on 16th July, the average decrement in income was 30%. After one month, the average increment in income is 20% (Refer Graph 3) The costs of production. From the interview, all samples reported an increment in the costs of production. The costs had increased for 13.8% after the price of sugar had increased on 1st January and the increment shown by Graph 5. When the price of sugar increased in 16th July, the cost increased to 10.1% from the previous cost. This cost is variable cost  [8]  . The market is considered to be short run (1st Jan) and long run (16th July). (Refer Graph 4). Cost, RM 10.1% AVC3 13.8% AVC2 AVC1 Graph 4: The average variable cost of production Average quantity of food The detail on the cost is shown in Appendix A. 3.1.5 Measures taken by food sellers to overcome the problem. The measures taken by the food sellers to overcome the cost experienced are:- Increase the price of the product Decrease the quantity of product being sold Decrease the amount of sugar in the product Extent the sales time 3.2 The demand side of the food market The demand shows the significance effect of increase in price of sugar to the food market and the sugar market itself. 3.2.1 The demand for sugar when the price of sugar increased. The demand for sugar has increased when the price of sugar increased on 1st January. Even though, the price of sugar increase again in 16th January, the demand for sugar continue to increased. Hence the demand curve shifted to the right for both situations. Price of sugar, RM/kg P D1 D2 0 Q1 Q2 Quantity of sugar, kg Graph 6 : The demand for sugar when the price of sugar increased. 3.2.2 The demand of food after the sugar price had increase When the price of sugar increased on 1st January, the demand of food decreased. However after four months, the food demand was back to normal. Then on 16th July, although the price of sugar continued to decrease, the demand of food at Shah Alam also continue to increase. The increment was about 15%. 4.0 Evaluation In this section, we will investigate the behaviour of the demand and supply and how exactly it had affected the food retailers and bakers in Shah Alam when the price of sugar increased. 4.1 The market mechanism of sugar when the price of sugar had increased The demand of sugar continued to increase after 1st Jan and 16th July even though the price had increased. The consumption of sugar in Malaysia is about 1.3 tonnes and up to two million tonnes of refined sugar is produced annually  [9]  . The PED  [10]  for sugar after 1st Jan is 2.175. This indicates that the sugar has inelastic demand. According to the theory, if a product has elastic demand, then if price is raised, the quantity demanded will fall by more in comparison and so the total revenue gained by the firm will fall. However, the demand of sugar continued to increase; was not following the theory. Government noticed that the demand of sugar was not affected by the increased in price. Then they proceed with rationalisation subsidy and increased the price of sugar by RM0.25 on 16th July. New PED was created which was 0.66. The new PED indicating that demand of sugar was inelastic and this also gave a signal to the government that the market of sugar was back to normal. Sugar is a necessity product therefore it should have inelastic demand. The increment on price of sugar on 16th July was a first step for rationalisation subsidy programme. The government continued with this programme and on 4th December, the price of sugar was increased again.  [11]   Price of sugar, RM/kg 1.90 1.65 a D b c Q2 Q1 Quantity of sugar, kg Graph 7: The demand of sugar Based on the Graph 7, if a good has inelastic demand, before the price is raised, the revenue gained is equal to revenue box b+revenue box c. After the price is increased, revenue box c is loss and revenue box a is gained in return. Thus holding in this theory, government is expected to decrease the sugars subsidy, increase the total revenue and at the same time, hopefully decrease the consumption of sugar to promote healthier lifestyle. After 1st Jan, the increase in price of sugar gave a shocking experience to citizen in Shah Alam even around Malaysia itself. In short run, the behaviour of the market was not stable. Mostly this was because consumers are afraid if the price of sugar is going to increase and sugar shortages are likely to happen. Malaysia offers the lowest price of sugar in the region and hence sugar are being smuggles to countries nearby. (see Table 2) Country Price of sugar (RM) Malaysia 2.10 Indonesia 3.50 Singapore 3.80 Thailand 2.80 Table 2: Different price of sugar among different countries in the region on September 2010.  [12]   In the long run (16th July), the demand of sugar continued to increase but proportionally. Consumer knows about rationalisation programme and the quantity demanded continued to increase because of festive season. 4.2 Importance of rationalisation of subsidy In 2008, sugar has not been subsidised. It started in 2009 when the price of raw sugar increased from US$220 per metric tonne to US$440. Earlier 2010 the government decided to remove the subsidy gradually as the price of raw sugar increased to US$660.  [13]   Price of sugar (RM) S + subsidy (3) S + subsidy (2) S 1.65 1.90 3.00 S + subsidy (1) S + subsidy (1) P3 1.45 Graph 7: Removal of subsidy on sugar 0 Qe Q3 Q2 Q1 Based on Graph 7, subsidy was first given (S+subsidy(1)) and then it was reduced gradually. Consumers are indirectly affected as the government will use tax revenues to fund the subsidies and involves an opportunity cost in terms of reduced government spending on other things. Importance of removal of subsidy. The benefit of subsidy is manipulated by the wealthy, foreigners and large firms. The large firms manipulate the use of subsidies and better off compared to the poor citizen. Reduce deficit and national debt. Thus achieve the development goals. Malaysia have to import 99% sugar supply.  [14]  According to the law of demand, when the price of a good increased, the quantity demanded of the good will fall. Therefore when the subsidy is reduced, the sugar demand will decrease, hence the imports will decrease too. Thus the amount of deficit will fall. From 1998 to 2009, the deficit increased from RM5 billion to RM47 billion. The national debt is rising to RM362 billion. If the government debt continues to increase at rate of 12% per annum, Malaysia could go bankrupt by 2019 (RM1158 billion debt) and ended up like Greece. In order to save the country, Malaysia needs to increase its GDP  [15]  and reduce government expenditure. Government spent RM74 billion in 2009 for subsidy and RM3.4 billion was for food. When sugars subsidy is removed gradually by RM0.20 until 2012, by 2014, Malaysia will save RM1237 million. Deficit and debt will be reduced by RM103 billion in five years.  [16]   Reduce opportunity cost and use the spending in other sectors or even for merit goods. Part of New Economic Model and 10th Malaysia Plan. Improve competitiveness and ensure optimal utilization of resources.  [17]   Malaysias competitive index has improved from 18th to 10th.  [18]   4.3 Food market mechanism when the price of sugar increased in short run. Average price of food, RM S1 S2 E3 P3 E1 Q1 E2 P2 P1 D2 D1 Average quantity of food, Q 10% Q1 Q3 Q2 Graph 8: Average demand and average supply of the market of food when the price of sugar increased in 1st January E1 was the equilibrium of the market of food when the price of sugar is not increased while E2 and E3 shows the new equilibrium when the price of sugar increased. The movement of D1 and S1 looks insignificant; however the reduction is big enough to cause the income of the food retailers to decrease significantly. There was 10% decrement for both supply and demand. This was caused by three factors which are substitutes, real income and government policies (campaign). Average price of food, RM There are wide range types of foods; hence there are a lot of substitutes (determinants). When the price of food increased, consumers tend to find other substitutes even in short run. This caused the demand curve to shift to the left from D1 to D2. The second factor was real income of consumers decreased; purchasing power decreases. When the price of sugar increased, many goods increase their price due to production cost increased. CPI  [19]  mostly for all types of goods increased (Refer Appendix C). Therefore real income of consumer decreased and they choose to decrease the amount of food to buy and rather cook by themselves. The third factor was government policies (campaign). One of the main objectives of government to increase the price of sugar was to create awareness among consumer to decrease the amount of sugar consumed. This was also the objectives of 5M campaign which to decrease the amount of sugar consumed. From this campaign, the consumer a void from buying ready food because the food sold contains a lot of sugar and it is not healthy. 4.4 Food market mechanism when the price of sugar increased in long run. The second increment of sugar is accepted as a long run increment because the consumer was aware of rationalisation subsidy programme. Price of food, RM E1 S1 S1 P3 E2 Q5 Q4 Q3 Q1 15% 25% 25% 25% 25% 25% D2 S2 D1 P2 P1 D1 Average quantity of food, Q Q2 Graph 9: The demand and supply side of food when the price of sugar increased on 16th July The graph shows that the demand and supply curve shift to the right. The supply increased by 25% while the demand increased by 15%. This is due to festive season (seasonal changes) stated earlier. The consumer had to increase their demand for food as it were necessity for them. Aware of this situation, the food sellers increased the food supply to generate more income. From the surveys conducted the public are aware of the increment in the price of sugar and of course the price of food. Most of them decreased the act of buying food because there are a lot of choices in Shah Alam. There are many wet markets, supermarkets and hypermarkets. The consumer can buy raw materials and cook their food themselves and save their money.(Appendix C) However, when the festive season came, there are traditions in Malaysia where there are markets that sell variety of ready foods in this season. Therefore many consumers increased their consumption of foods because of the festive season. In addition, Malaysian has the habit of accepting government plan even though at the beginning they were not satisfied. As time passes by, they accept it as they know it is for their own good; hence the market mechanism of food is back to normal in long run. 4.5 The burdens that increased price of sugar had caused to the food sellers. From the interviews conducted, the increased price of sugar affects the income of the food sellers and increases the cost of productions. Average price of food, RM D2 D1 S1 S2 P1 E1 E2 P1 Loss of income Average quantity of food, Q Q2 Q1 Graph 9: Income of the food sellers At the beginning, the income of the food sellers was 0P1E1Q1. This was the equilibrium level of income of the food sellers. At this level, the food sellers can support all type of costs. The food retailers live a comfortable life until their income decreased to 0P1E2Q2. The grey area is around 20% percentage loss from the real income. The food sellers had to decrease their expenditure because of less income. Not even the price of sugar has increased but other materials that needed for production of food also increased. The technology used could not be repair and no replacement investment  [20]  could be carried out. The sellers need to decrease their living expenses to resort the loss income. They also might need to use their savings especially the sellers that handle small business, hawkers. They will faced big impact as they did not gain a lot of income compared to larger business. Competition increased as food sellers compete to minimize the cost to lower the price of food, thus increase demand. The sellers reported that they did not agree by the decision of the government especially when the price of sugar increased. There were rumours that the government will increase the price of sugar again, hence the consumers were afraid and thus panic buying happened and the demand of sugar increased. This caused shortages. This affects the food sellers as they cannot find the supply of sugar. For small food sellers who used to buy sugar at mini market had to travel to find other suppliers as shortages of sugar happened. Even at the hypermarket, sugar supply is limited and each people restricted to buy only 2kg of sugar. This has increased the cost of production and also affects their emotion and the productivity. They even had to increase the price as geographical mobility affects pricing. In addition, inflation  [21]  (increased in CPI) gave additional burdens to the food sellers (Refer Appendix D) as the price of other products increases (increase in cost of production). Some of the food sellers need to lay off their workers and this caused unemployment rate to increase (Refer Appendix E) The food sellers had to take few measures to repair this situation. Among the measures taken, they had to extend the sales times and this actually burdened them as the labour cost increased. When they follow the government campaign to decrease the amount of sugar, this change the taste of the product and caused the taste of the consumer changed too. Mostly the measures taken do not help them but since food is a necessity and due to festive season, the demand increased. After four months, the demand increased heading towards equilibrium and so does the supply curve. The income increased as it was nothing happen. Fortunately, festive season came and the demand for food increased significantly. This helps the food sellers to gain back their loss profit. Aside from that, 50% of the consumer did not agree that by increasing the price of sugar, the citizen will decrease the consumption of sugar while the other half agree that by increasing the price of sugar, consumption of sugar will decrease. Not many consumers are aware that government decreased the subsidy to decrease the national debt. This shows that public is unaware of the countrys situation. Incomplete flow of information is one of the reasons of market failure. Therefore government interventions are needed to create awareness so that the public could help the country to increase the national income. On the other hand, the research made by the government reported that out of 191 592 Malaysians, 115 703 agree with subsidy rationalisation and 124 750 agree the subsidies should reduced in 3-5 years.  [22]   5.0 Conclusion Clearly this research has answered the research question. The food sellers did experience a lot of problems when the price of sugar increased. Shah Alam is the capital city and there is a sugar factory but the food sellers still faced sugar shortages. The cost of production increased the income are lowered. Their emotion are affected but only in short run. The living expenses being reduced and their way of life changed. Although, there were few measures taken, it still cannot fix the problems. Fortunately, the market of food had recovered by itself and fixed the problems faced. The demand increased and the income of food sellers increased. The loss is recovered. Government should be aware of the impact that could cause the food sellers and should give awareness to the consumer the problems faced by the country (See Appendix F for recommendation). The consumer should understand the burden faced by the food sellers and do not blame them when the price of their product increased. Maybe the consumer could decrease the consumption of import good and increase the consumption of local good instead, then reduce the deficit and hence to help the country. Consumers also can change the way their life by consuming less sugar or substitute with other type of sugar example brown sugar or any artificial sugar on market. (See Appendix G for sugar substitutes). With this sugar shortages will decrease and substitutes could promote healthier lifestyle. Nevertheless the balance of payments is now become more stable. The deficit already reduced (see Appendix H ) and the current account balance increased  [23]  (see Appendix H and I). However, the GDP growth rate annually decreased. This might due to decrease in government spending. Still, this situation is surprising because rationalisation subsidy programme should increase the GDP but contrary situation happened (see Appendix J). Further research can be done to investigate the reasons of this situation and market mechanism around Malaysia should be study especially the rural areas so that comparison can be made. 6.0 Limitations In this research, the exact figure could not be attained. The food sellers do not want to co-operate due to confidentiality. The workers also could not co-operate due to working policies that not allow any interviews. On the other occasion, the respondents do give response but the answers might incorrect, they simply answer it because the answer looks true. This research was carried out in Shah Alam, therefore the data could not represent all population. This research does not specific on one type of food. Hence the data might be inaccurate. However from the observation make, the data is reliable. Time constraint hindered the research progress.

Under Pricing of Initial Public Offerings

Under Pricing of Initial Public Offerings Investopedia.com defines initial public offering as the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.  [1]   IPO INITIATION AND THE PHASES OF IPO TRANSFORMATION: Any IPO goes through the following stages of transformation: The pre-IPO transformation phase can be considered to be a restructuring phase where a company starts the groundwork toward becoming a publicly-traded company. Furthermore, companies should re-examine their organizational processes and policies and make necessary changes to enhance the companys corporate governance and transparency. Most importantly, the company needs to develop an effective growth and business strategy that can persuade potential investors the company is profitable and can become even more profitable. On average, this phase usually takes around two years to complete. The IPO transaction phase usually takes place right before the shares are sold and involves achieving goals that would enhance the optimal initial valuation of the firm. The key issue with this step is to maximize investor confidence and credibility to ensure that the issue will be successful. The intent of these actions is to prove to potential investors that the company is willing to spend a little extra in order to have the IPO handled promptly and correctly. The post-IPO transaction phase involves the execution of the promises and business strategies the company committed to in the preceding stages. The companies should not strive to meet expectations, but rather, beat their expectations  [2]   The marketing process of going public is marked by what is called road show.  road shows involving Issuers and key managers of the company to potential investors via presentations in major cities and face to face with the target investors (Ritter, 1998).  These presentations focus on business operations, products and services, and management.  The visit aims to assess the expected demand for the shares of the company and serves as a key input in the final determination of the initial price of the shares At the end of the road shows, and just prior to the actual first day of trading (usually days before opening day), directors and underwriters will determine the initial offering price.  This is quite important because once the price is determined there is no scope of increasing it even if there is high demand for it. This is how stocks become underpriced. By the close of the first trading day a huge difference can be seen between the actual price and listed price. The concept of under-pricing is dealt with more detail in the following section. THE CONCEPT OF UNDERPRICING Under-pricing is the difference between the initial offered price of the stock and the price at the closing of the first day of trading (Ibbotson, 1975, Ibbotson, Sindelar and Ritter, 1988 Ritter, 1998). This undervaluation is not unusual for companies to commit.   To illustrate, suppose the initial price of a firm issuing 1 million share is $100/share. This would result in a capital of $100 million for the company when all the shares are sold. Now suppose towards the closing of the day, the share is traded at $150. This would mean that the share was underpriced by 50%. This results in an available profit of $50 million for the initial investors. This phenomenon is seen universally across developed and developing countries. This trend of under-pricing can be seen as going against the concept of market efficiency and may cause distress to firms trying to collect capital for expansion. In this regard much research has been done and much literature has also been written. The theory of efficient markets suggests that the price of newly issued shares will quickly adapt to all relevant available information in the market (Fama, 1970) reflect.  However the constant undervaluation has raised questions about what happens when companies go public.  The decision to go public is one of the largest in corporate finance.  Even developed economies like the US, a number of large companies are not public. This shows that going public is not mandatory for a company but it is a choice. However there is a clear disparity between companies choosing to use the stock market and the companies that do not.  A company basically goes public to either diversify their portfolios or to raise capital to invest in future projects. Some other reasons why a company might opt for going public include overcoming debt, change of controls and to enhance opportunity. WHY ARE IPOs UNDERPRICED A LITERATURE REVIEW There are direct and indirect which are borne by the company when an IPO is issued. The indirect cost is the cost associated with information provision to the stock market and the direct costs are the numerous costs which are associated with fees and charges such as the underwriting fees, legal fees and auditing fees etc. However the most important among these and probably which affects the stock price once it is issued is the dilution associated once the shares start to change hands in the public. Often IPOs are found to be underpriced due to this dilution costs. Moreover the IPOs are often subject to the practice of book building. Book building refers to the process of generating, capturing, and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery.  [3]  In the event of an issue going public, the issuer always fixes a price band and allows the investor to quote a price within this price band. The upper limit of this price band is the maximum possible price to be paid for the IPO and hence there is a chance that the issue becomes underpriced in case there is excessive demand for the stock. In this the valuation of the stock often reaches an estimate before the stock transacts in the market. As such there is a chance that the stocks get oversubscribed. A peculiar trend can be seen in case of IPOs. The returns are quite high in the initial period. But over a short period of time this return is normalized or completely minimized and the stock star ts to trade at a value close to its actual issue price. Therefore it may be wrong to assume that the stock is actually underpriced at the time of issue. Several factors can affect its high return which can include a bullish market also. Rock (1986) and Baron (1982) explained this under-pricing through their models. Baron assumed that investment bankers /underwriters possess more information on the demand of the security than the issuer. The issuer has to compensate the underwriter for this superior information set. Rock assumed that there are two groups of investors in the IPO market which are categorized as the informed investor and the uninformed investors. Systematic under-pricing is needed so that the uninformed buyers can earn a normal expected return The price formation process for IPOs may be susceptible to the existence of significant conditional price trends in the short-run aftermarket for several reasons: First the market takes time to adjust to the amount of analysis done on the announced issues and this time can extend over several months. There is a great deal of skepticism around the IPOs because of the scarcity of public information available at the time of initial offering. Thus their true value seems highly uncertain to the public. The initial return of the stock is actually the first reaction of the people and goes on to show how the people assess the stock against the initial offering. Second, the first market price may fail to reflect fully all available information because of the potentially fragmented market for IPOs. The issue size of IPOs is typically small and the underwriters, often facing excess demand, ration new issues to their regular clients, who constitute a small subset of potential investors. Initial trading in the aftermarket serves to disseminate information about the value of IPOs to other investors. While initial upward price movement of underpriced IPOs spreads favorable information, the available supply of shares is restricted because underwriters typically discourage initial subscribers from selling their allotments in the aftermarket. Investors who were unable to obtain their full subscriptions at the offering may seek to buy shares in the aftermarket, resulting in a sequence of daily positive returns. In the case of an overpriced issue, the first market price fails to reflect the available information because of price stabilization by the un derwriting syndicate. The under-pricing can be explained with the help of many hypotheses. These are discussed below: The Risk-Averse-Underwriter hypothesis: In order to mitigate the risks and costs of underwriting the underwriters usually knowingly undervalue the stocks. However the investment bankers readily do their homework and they have a fair idea of the actual value of the stock. Therefore this hypothesis only seems meaningful when there is a scope of book building and not when there is a case of fixed price offerings. Since both book building issues and seasoned equity offerings were historically underpriced, one cannot say that the main motive of under-pricing were the investment bankers desire to averse risk. The Monopsony-Power Hypothesis (Ritter, 1984): The investment banker enjoys monopsony power while analyzing common stocks of small firms. They then ration these to the most influential customers who have maintained good relations in the past. Further reasoning by different analyst suggested that this under pricing can also be targeted at earning excess income in the form of commission and fees. (Ritter, 1984) suggested that the gross under pricing might be result of the monopsony power of the investment bankers in underwriting common stocks of small speculative firms. According to Ritter, the investment bankers intentionally under price the securities and ration them to their large customers who regularly buy a variety of investment services from them. The Speculative-Bubble hypothesis: This hypothesis says that one of the reasons for stock price to boom is due to those investors who could not grab a share during the IPO (because of oversubscribing) and those who speculate that the prices of these stocks will rise in the future. This was typical during the IT boom period. The point to wonder is what determines the true value of the stock. The true valuation and the quality of the IPO can be analyzed by the following: Retained Equity Since firms can determine how much equity they will give out at the time of initial public offering. Since this figure can be obtained in advance therefore it serves as the most relevant and the most researched. Since the pre-IPO ownership of firm is determined and very unlikely to change, this becomes an extremely difficult signal to imitate. It must be noted that any change in such information prior to the IPO can dampen the enthusiasm of the investors and might have significant impact on the value of the stock. Underwriter prestige The market value can be significantly changed due to the prestige attached with the underwriter. Those investment bankers who have a good reputation in the market will signal less uncertainty about the performance and offer value of the IPO. The valuations done by these investment bankers will be considered with less speculation But even in the face of a prestigious investment banker doing the valuation, there is significant chance of under-pricing. These underwriters play with two key constituents in the IPO process. The underwriters representing the firm forms the first and the client base for whom the securities are marketed. The first constituent is the firm whose securities the underwriters represent. The second is the client base to whom the underwriters market the IPO securities. Auditor Reputation The price of the IPO can also be influenced by the auditor reputation. The auditors who are deemed as high quality will be judged with very less speculation and the investors will fairly accept the value of IPO set forth. If the auditor fails to reveal potential negative firm information, then the reputation of these high quality auditors may suffer. In some cases shareholders can also file a lawsuit. Number of Risk Factors The prospectus revealed by the issuer also details the risk factors pertaining to the company. The purpose for this is to let the investors assess the fair value of the IPO and the possible opportunity that might exist in investing in this IPO. Firms with more risk factors can be associated with higher uncertainty. Firms with greater numbers of risk factors are associated with higher uncertainty. Firm Size Larger firm size often has greater resources and more opportunity to survive in extreme situations. Thus the firm size also motivates the price of the IPO. Several studies found that there is a negative correlation between underpricing and firm size. This is consistent with the relation between large firm size and more stability. Thus potential investors trust the IPO price to be close to its fair value when large firms are at stake. Moreover the larger firms also are associated with more prestigious underwriters. Firm Age The more the age of the firm will act as a protection from the risk and this is used in valuing the price of the IPO. This is because the younger firms have less number of published financial data and hence the valuations done for these firms are often subject to uncertainty. Moreover these firms are also not analyzed by financial analyst. Firm age and performance are often related. Offer Price One of the responsibilities of the lead investment bank is to assess the pre market demand for its clients prospective IPO in an effort to set a reasonable price. Thus this initial price might also instigate some amount of under-pricing. Also it has to be known that a very modest price will signal less demand and less value or maybe both. The initial price of an IPO offering may also have value as an indicator of underpricing. In the early stages of an IPO, the lead investment bank is responsible for assessing the premarket demand for its clients prospective IPO in an effort to set the offer price. Presumably, a very modest offer price will signal little demand, little value, or both

Internship Essay -- essays research papers

The senior that I chose to interview was Devon Smith also known â€Å"Mouse†. Devon is a graduate of Laurel High School and is currently attending Bowie State University. He is a student athlete and a member of the Pedology program. In this interview I will ask questions in regards to his field placement to better understand how and why things work when entering the field. I feel as though I am prepared for my internship, but hopefully after interviewing Devon I won’t be as nervous about my field placement. I realize that the information he presents is imperative to me starting my internship. Q: What was the hardest part of the field practicum? A: The hardest part of my field practicum was basically learning all the procedures of your field studies and learning all the policies and procedures once you get there. Q: How did you feel entering the agency? A: I felt cool because there wasn’t any stress put on my back because they knew my situation me being an athlete and dealing with academia as well. The school was flexible with my hours as long as I completed whatever they asked me to do. Q: What was the hardest task you had to perform at your site? A: The hardest task was getting accustomed to the children to make sure that I follow the procedures when faced with certain situations, like counseling a student, or restraining a student who is out of hand, learning how to encourage a student about academics and how to deal with a student who has behavioral problems. Q: What weakness did you have that has now become strength since working in the field? A: The weakness that I had was being sort of like closed off, I mean not totally but it takes me awhile to open up to people but I think that I am more efficient at talking to the kids. They are kind of shy when they first meet you so in order for them to open up I had to let myself go and let them know that it was ok for them to open up. With some one my age it is easier to you know break the ice, but with kids if they don’t come to know or trust you than they hold things back and wont tell you certain things. Q: What would you like to see different from a policy standpoint? A: as far as the student suspensions I would rather see them find an alternative to suspending students. If they are suspended then nine times out of ten they miss out on school work and end up falling behind. Q: What was the most important thing... ...ew candidates. Most importantly, it is critical that you get involved in a professional association related to your career interests. Attending events that various organizations offer, maximizes your exposure to the firm that you potentially may intern for, ever-increasing your chances exponentially of receiving an internship.  Ã‚   Lastly, keep in mind that not having an internship program in place does not mean that an organization is unwilling or apathetic in having an intern.   While larger firms are more likely to have recognized internship programs, it is possible and probable that firms smaller in size are more than willing and able to hire an intern or build some type of internship program.   If you are truly interested in working for an organization, do not hesitate to take the initiative.  Ã‚  Ã‚   After the interview, I thanked Devon for his time and felt more confident in the selection of my field. I knew that this is what I wanted to do but I would have sporadic uncertainties about my abilities and how my transition into the workplace would be. The information that he had provided combined with what I had already knew made me feel more comfortable with pursuing an internship.

Stock Market crash of 1929 (present form) :: essays research papers

  Ã‚  Ã‚  Ã‚  Ã‚   Before World War I only small fractions of Americans invested or had interest in the Stock Market. Many Americans thought of Wall Street with fear and loathing. Populist politicians denounced Wall Street as the center of financial shell games thought up by millionaire operators like Gould, Drew, Morgan and others.   Ã‚  Ã‚  Ã‚  Ã‚  But with the conclusion of the War, many of Americans were getting a different perspective of the Stock Market. Many lost fears of investing due to many were previously buyers of Liberty Bonds. Many Americans assumed they knew the advantages of investing and knowledgeable about stock splits, margin accounts, dividends, etc. New financial methods, the investment trust offered new approaches to investing in the market and many major corporations such as General Motors, General Electric and AT&T offered common stock and bonds were starting to boom and attracted many new money-seeking investors.   Ã‚  Ã‚  Ã‚  Ã‚  And till last month, the market was center of conversation, talked about and financial advice was shared everywhere! The market continued to increase, Major Corporations stocks rose incredibly. But brokers loans reached $137 million, and New York’s banks were in debt to the Federal Reserve by $64million. Warning signs began to appear in the market, and many market analysts began predicting the crash. Throughout the nation, thousands of investors were margin trading, buying stock on credit. The margin trader bought stock by paying less than the full price. This was highly profitable but extremely risky. If the stock value decreased the customer had to invest more money to sustain the account. And if the stock kept falling, the customer would run out of their money, and the broker, who usually borrowed money from their banker, was forced to sell out the account for any amount offered. If the customer could not pay the broker, the broker was unable to pay the banker, which placed of them all in debt.   Ã‚  Ã‚  Ã‚  Ã‚  Many banks wanted their money from brokers, brokers wanted their money from customers, and the only method most customers could get their money was by selling their stock. And so there were massive rapid sales that totaled to nineteen million shares on Friday the 25th of October. The selling of the stocks depressed the market, in other words caused the stock market crash.   Ã‚  Ã‚  Ã‚  Ã‚  Yesterday, on October 29, 1929 also known as â€Å"Black Tuesday,† was the most devastating day in economic history, a total of 16, 410, 030 shares were sold.

Peoples Obsession With MUDs :: Technology Internet Chat Essays

People's Obsession With MUDs Patik licks Mary. Mary giggles and kicks him in the shin. Krista pirouettes and falls down laughing. Cislynx seduces Missworld. Ralphie shouts, "who wants to tango"?! I am not having a nightmare, and I do not live in a mental institution. I am simply witnessing the typical behavior of a Multi User Dungeon (MUD). MUDs have become all the rage in the rapidly increasing world of computer technology. MUDs put you in a virtual space where you can create an identity and "chat" with other people. In this virtual world, you are represented by a self-composed textual description: if youre fat, you can be thin; if you're beautiful, you can be plain; and if you're nerdy, you can be sophisticated. This anonymity allows you to express unexplored aspects of yourself, to play with your real world identity by trying out new ones (Turkle 12). In addition to creating an identity, your virtual character can converse with others, exchange gestures, express emotions and rise and fall in popularity. You can even die in a MUD (Turkle 183). Essentially, you can be who or whatever you want, and you can say anything because your character exists only in cyberspace, as does everyone else who you encounter. You might ask yourself why do people bother to spend hours, days and weeks interacting with virtual beings? Why don't these people get out more and try living in the real world? The answer is simple. On-line communication in a MUD is a unique form of interaction because it is the only place in the world where you can leave your "real" life, assume the identity of your dreams and behave as you like without leaving any negative impact on your non-virtual existence. People are obsessed with MUDding because it is an escape mechanism which allows you to ignore reality and live out fantasy. This desire to escape reality is an understandable response to an overemphasis on who you are or to the problems of your real-world identity. As a society, we have created an immense pressure upon ourselves to have a "perfect" self-image. This "perfection" can range from wanting flawless skin and pouty lips to desiring a successful career and a happy family. The demands of creating and sustaining this perfect modern identity are becoming increasingly burdensome, and as your life centers more on maintaining this certain image the desire to escape from the image grows greater (Baumeister 2).

The Global Positioning System

The Global Positioning System (GPS), the pioneer in navigation technology, was launched by the government of USA for military purposes to guide the missiles and to move targets. The systems currently consist of 31 satellites (as of March 14, 2018) orbiting twice a day in circular motion at an altitude of 20,200 km. GPS provides precision in computing the velocity, position and time. Although, it is subsidized and maintained by Department of Defense, the civil users across the world use it, at free of cost for various purposes.TechnologyGPS consists of three segments namely, the satellite or the space segment, user segment and the control segment. The space segment consists of satellites, the user segment are the GPS receivers and the control segment helps to monitor the satellite operations. There are five control units to monitor the proper functioning of the satellites, and they are stationed in Krasnosnamensk (Moscow), Schtscholkowo (Moscow), Komsomolsk (Russia), St. Petersburg (Florida) and Ternopil (Ukraine). The location of the user is determined by the line of visibility of four or more satellites and measured by two factors: pseudorange and carrier phase. Usually three satellites points to the coordinates of the user and the fourth is for the user's clock error. The GPS tracking system which is augmented by Low Earth Orbit (LEO) which is orbiting at an altitude closest to the earth's surface provides comprehensive internet access to remote areas even with low intensive users. Unmanned Aerial Vehicles (UAVs) or drones having integrates sensors and GPS receivers uses multicopter technology to fly and capture photos and videos. The drones are capable in identifying objects and avoiding collisions and quickly react to the environmental disturbances like wind, tress, buildings by adjusting their position and movements accordingly. Most importantly, the multicopters have an automatic landing when there is an interruption of signals. UsesWhen people affected by Dementia or Alzheimer's are lost, the GPS tracking device helps to locate the person. The devices are available in various forms to wear them as watch or as pendant around the neck or in the soles of shoes and or can be even attached to the clothing of the patient. Apparently, to avoid restricting such people within nursing homes, it maximised the autonomy and protected them from getting lost. Perhaps, these devices not only help to monitor the location of the person but has fall sensors to alert the caregiver in case of an emergency. The usage of drones in live sports telecasting is an added advantage giving stunning views and movements to the spectators. As they are smaller in size and less noisy, the drones are able to manoeuvre and get some closer shots which helps in decision making in the corresponding sport.Materials and MethodsResultsConclusionOver the years, there will be a paradigm shift for business running with GPS technologies by Global Navigation Satellite System (GLONASS) or Galileo. GLONASS was the system developed by the Soviet Union whereas Galileo by the Europe Union (Rizos, 2003). Although, these satellites differ in orbital planes and the altitude from the earth, they provide accurate navigation to the military and the common man. Today, there are several networking and telecommunication companies like St-Ericsson, Qualcomm and Broadcom to offer devices supporting GPS and GLONASS.

Evaluate the ways in which ideas were communicated to the audience Essay

Our central concepts and ideas for this piece were: Search for answers, desperation, fall of economy and society, fight for survival, obligatory ignorance. We wanted to communicate that in a downfall of the economy society will collapse; society needs money to survive, to be precise the human race needs things. Through this idea we wanted to show that once the financial system was taken away it came to down to survival of the fittest, people adapting to survive and breaking the taboo in order to do so. We also wanted to communicate that the protagonist was following his basic instincts to discover and learn, driven on a journey catalysed by the loss of his partner. As well as showing that there are often no answers, no matter how much effort and toil you are put through, we decided on showing how people can deal with what happens when they aren’t provided with what they want to know, that some people jump and take themselves out of the situation rather than having the weight of ignorance on their shoulders. Most of the members of the group were aware of these messages, but we made sure that every single one of us portrayed them through our performances to the best of our abilities so they could be carried across to the audience, even if they didn’t recognise them straight away. A few of these messages certainly did carry across but not to the extent we would have hoped. A lot of the younger members of the audience didn’t follow the plot completely, even after an explanation of the story. The older members also admitted that it was quite difficult to digest, and that it might have needed a second viewing to reiterate the plot and distinguish the deeper messages. A couple of them said, however, that the messages seemed to sink in and play on their mind over the next week and, when thinking of the amount of content we had actually performed in 45 minutes, realised how much we had put into it and how innovative it was. During our humorous scenes the audience were extremely engaged, laughing for long periods of time to at the certain bits of action or speech, this was exactly how we wanted and expected the to react. At the beginning they seemed to be quite agitated and were picking up the pictures that had been dropped from the catwalk above, this was again expected. At the rape scene they were very uncomfortable we could tell by the amount of tension left in the room, shuffling during the scene and the uncomfortable silence after the scene, we expected this kind of response, however we didn’t think it would be so extreme. I felt that we successfully conveyed the ideas of piece to the best of abilities but some members of the audience seemed to have received the messages we were trying to put across more than others. This was noticeable when talking to them afterwards as a lot of the audience; especially younger members found the plot difficult to follow. This meant that their brains were more intent on figuring out the plot that they missed key sections that were conveying these messages. The content was clearer to our teachers as they’d had the benefit of seeing the performance numerous times, this allowed them to digest the plot and, upon watching the play again, deconstruct and understand the meanings. I think we could have communicated the meaning clearer to the audience by either simplifying the plot or creating a more consistent and distinct narrative device. Our narrative device that appeared most often was the voice of the company, I think that exploring this character into more detail and having it recite pieces of text that suggest a story line more often would have made it clearer to the audience about the journey. We didn’t do this because we thought that the plot was more interesting without using a narrator thus leaving the audience in suspense and creating an unpredictability to the piece. The performance taught me that to create and present a great piece of drama you need perseverance, a good group dynamic, that discussing ideas relentlessly without taking action doesn’t get you anywhere, that you shouldn’t be afraid to tell a member of the group that an idea isn’t good enough, it’s better to come out with a great piece of drama after a fall out than have some mediocre. Also every scene has to stand alone before it can start to hold together as an entire piece. Our ideas surrounding obligatory ignorance were less obvious than some of our others but none the less proved effective in our performance we know this as they provided an under pinning to the plot that was hinted at but never directly addressed this helped to create a consistency throughout the piece that was obvious to the audience. Other, more directly tackled ideas, such as searching for answers, desperation, fight for survival, the fall of the economy and the fall of society. Idea/Theme How we attempted to communicate this to an audience How effective or communication was Fall of economy and society: This idea provides the starting point and is the catalyst for the plot. We have included this theme to explore a hypothetical world in which the economy collapse causing the downfall of civilisation and how it would be dealt with. We communicated this by beginning the piece with an ’emergency service announcement’ that pronounced that the economy had collapsed we had a 3 minute monologue from a member of the group speaking over air raid sirens and standing in front of flashing police lights. This was extremely effective as it was a clear concise obvious representation of an epidemic, the audience responded to it very well and said, after we talked to them that they got this bit. Searching for answers: This idea is the catalyst for the protagonist’s journey, this would mean that his tragic flaw would be ‘a need for answers’ as this ultimately leads him to his death. We included this idea so that the protagonist had a purpose to go on this journey that is, basically, the plot. This is communicated through the plot by sending the protagonist on this journey that is filled with multiple characters and dangers, yet he still goes on through multiple challenges just to find a way to understand, this is also represented in his confrontation with the bosses, persistently asking them question and insisting they tell him. This also carried over very well, they knew what he was doing why he was going, the only thing that confused them was if the protagonist knew about what happened to his partner as the photos we used with the words ‘eliminated’ on them weren’t visible to numerous members of the audience. Obligatory ignorance: This idea basically surrounds the idea that the protagonist will always, knowingly, be left in the dark about the events surrounding the loss of his partner, which also relates to the rest of the characters who are introduced in plot. We did this to convey that the people who the protagonist meets are people who have dealt with this forced lack of answers in different ways and that the characters in each scene will always be completely opposite to ones in a previous or following scene. We attempted to communicate this by confusing the audience, we showered them with pictures to intrigue them and want to find out answers like the protagonist. We wanted make it infuriating so that when the protagonist was denied the information he wanted from the Wise man and the bosses they would be equally as distraught. Audience members were definitely infuriated about the lack of answers that were given, which is exactly what we wanted. This made sure that they would be thinking about the play after they’d left and, hopefully, relate it to the current day. Fight for survival: This idea is providing an obstacle for the protagonist to face, making the plot interesting. We included this theme also to explore the primitive nature in which the human race would have to revert to in order to survive without the security of something that no longer exists. This is communicated through the challenges the protagonist face i. e. the prostitute scene, the war scene and the memory scene. In the latter the last person to speak reveals the dog eat dog world and kills herself for recessing to her primal instincts. This was definitely clear, talking to the audience afterwards a member said ‘That [world] as a bit rough wasn’t it? ‘ so it carried well.