Areas of Expertise

IPOs, M&A, corporate governance

Academic Degrees

• PhD, Stanford University, 1991
• MA, Stanford University, 1990
• BBA, Baylor University, 1983

Professional Experience

• Visiting Professor, Stanford University, 2016
• Indiana University Credit Union, Chairman of the Board of Directors (2015-2016), Board member (2010-present)
• Skyhawk Small Cap Mutual Fund, Trustee (2007-2010)
• Wonderlab Museum of Health, Science, and Technology, Treasurer (2008-2010) and Board Member (2006-2014)
• University of Otago, Visiting Scholar (2007)
• Intel Corporation, Visiting Scholar (1999)
• Stanford University, lecturer (1989-1990)
• Baylor University, lecturer (1985-1986)

Awards, Honors & Certificates

• MBA Teaching Award, 1994-2000, 2002
• Doctoral Student Association Teaching Award, 1995
• Distinguished Service Award, 1997-98, 2009-10, 2012-13

Selected Publications

• Zutter, C. J., and Smart, S. B. (2018), Principles of Managerial Finance (15th edition). London, UK: Pearson.
• Boulton, T. J., Smart, S. B., and Zutter, C. J. (2017). Conservatism and International IPO Underpricing. Journal of International Business Studies, 48(6), 763-785. View Full Text
• Smart, S. B., Gitman, L. J., and Joehnk, M. D. (2017). Fundamentals of Investing (13th edition). London, UK: Pearson.
• Boulton, T. J., Autore, D., Smart, S. B., and Zutter, C. (2014). The Impact of Institutional Quality on Initial Public Offerings. Journal of Economics and Business, 73, 65-96.
• Boulton, T. J., Smart, S. B., and Zutter, C. J. (2013). Industrial Diversification and the Underpricing of Initial Public Offerings. Financial Management, 42(3), 679-704.

  Abstract

  Abstract

  The initial public offerings (IPOs) of diversified firms, those reporting more than one business segment at the time they go public, experience less underpricing than do IPOs by focused issuers. We explore two explanations for this phenomenon. Diversification may benefit IPO firms by reducing information asymmetries and therefore, lowering underpricing costs. Alternatively, high quality focused firms may be signaling their value by underpricing their shares to a greater degree. Though we find at least some evidence consistent with each explanation, a majority of the evidence favors signaling.

• Boulton, T. J., Smart, S. B., and Zutter, C. J. (2011). Earnings Quality and International IPO Underpricing. The Accounting Review, 86(2), 483-505.

  Abstract

  Abstract

  In this paper we examine the impact of country-level earnings quality on IPO underpricing. Examining 10,783 IPOs from 37 countries, we find that IPOs are underpriced less in countries where public firms produce higher quality earnings information. This finding persists after controlling for other deal- and country-specific factors that affect IPO underpricing, and it is driven neither by the large and relatively transparent markets in the U.S. and U.K. nor by the relatively opaque Japanese market. The impact of going public in a country with relatively low earnings quality is partially offset by the use of a top-tier underwriter.

• Boulton, T. J., Smart, S. B., and Zutter, C. J. (2010). Acquisition Activity and IPO Underpricing. Financial Management, 39(4), 1521-1546.

  Abstract

  Abstract

  We propose an “M&A activity” hypothesis as a partial explanation for IPO underpricing. When going public during active corporate control markets, managers may take actions to safeguard their control. In support of this conjecture, we find that pre-IPO M&A activity directly explains IPO underpricing. We also find that underpricing and ownership dispersion are positively correlated, as are ownership dispersion and the probability of remaining independent. Considering the possibility that some managers take their firms public to be acquired, we find that the positive link between M&A activity and underpricing is not robust for firms that are viewed as likely targets.

• Boulton, T. J., Smart, S. B., and Zutter, C J. (2010). IPO Underpricing and International Corporate Governance. Journal of International Business Studies, 41(2), 206-222.

  Abstract

  Abstract

  That a link exists between a country’s legal system and the size, liquidity, and value of its capital markets is well established. We study how differences in country-level governance impact the underpricing of initial public offerings (IPOs). Examining 4,462 IPOs across 29 countries from 2000-2004, we find the surprising result that underpricing is higher in countries with corporate governance that strengthens the position of investors relative to insiders. We conjecture that when countries give outsiders more influence, IPO issuers underprice more to generate excess demand for the offer, which in turn leads to greater ownership dispersion and reduces outsiders’ incentives to monitor the behavior of corporate insiders. In other words, underpricing is a cost that insiders pay to maintain control in countries with legal systems designed to empower outsiders. Consistent with this control motivation for underpricing, we find that underpricing has a negative association with post-IPO outside blockholdings and a positive association with private control benefits. In addition, firms whose insiders are entrenched either by majority ownership or dual-class structures do not underprice more in countries with better governance. In these firms, the ownership structure protects managers from outside influence, eliminating the incentive to increase outside ownership dispersion through underpricing.

• Graham, J., Smart, S. B., and Megginson, W. (2010), Corporate Finance (3rd Edition), Mason, OH: Cengage South-Western.
• Boquist, J., Danielova, A. N., Smart, S. B. (2010). What Motivates Exchangeable Debt Offerings? Journal of Corporate Finance, 16(2), 159-169.

  Abstract

  Abstract

  Debt that is convertible into shares of a company other than the issuer is called exchangeable debt. Most firms that issue exchangeable debt hold large blocks of shares in several companies, and in this paper we study factors that influence the selection of a particular block to serve as the underlying asset for an exchangeable debt issue. Comparisons between issuers’ holdings in different firms sheds light on issuers’ performance as monitors as well as their ability to engage in market timing.  Holdings attached to these issues display superior past operating performance, but after the offer, both operating performance and stock returns decline.  In contrast, we do not find similar systematic performance patters for the “other holdings” of exchangeable debt issuers.

• Smart, S. B., Thirumalai, R. S., and Zutter, C. J. (2008). What's in a vote? The short- and long-run impact of dual-class equity on IPO firm values. Journal of Accounting and Economics, 45(1), 94-115.

  Abstract

  Abstract

  We find that relative to fundamentals, dual-class firms trade at lower prices than do single-class firms, both at the IPO date and for at least the subsequent five years. The lower prices attached to dual-class firms do not foreshadow abnormally low stock or accounting returns. Moreover, some types of CEO turnover are less frequent among dual-class firms, and in general CEO turnover is sensitive to firm performance for single-class firms but not for duals. Finally, when dual-class firms unify their share classes, statistically and economically significant value gains occur. Collectively, our results suggest that the governance associated with dual-class equity influences the pricing of dual-class firms.

• Smart, S. B., Megginson, W., and Bortolotti, B. (2008). The Rise of Accelerated Seasoned Equity Offerings. Journal of Applied Corporate Finance, 20(3), 35-57.

  Abstract

  Abstract

  Seasoned equity offerings (SEOs) executed through accelerated underwritings have increased global market share recently, and now account for a majority of U.S. and European SEO proceeds. We examine 31,242 SEOs, executed during 1991-2004, which raise over $2.9 trillion. Compared to fully marketed deals, accelerated offerings occur more rapidly, raise more money, and require fewer underwriters. These deals typically involve large firms selling primary and secondary shares, whereas in traditional SEOs primary shares dominate. Accelerated deals reduce issuance costs by about 250 basis points, with announcement period returns comparable to traditional offerings. This rapid shift toward accelerated underwriting suggests the maturing of a superior SEO issuance technology.

• Smart, S. B., and Zutter, C. J. (2008). Dual-Class IPOs ARE Underpriced Less Severely. Financial Review. 43(1), 85-106.

  Abstract

  Abstract

  Arugaslan et al. (2004) challenge underpricing results obtained from conventional cross-sectional regression analysis on the grounds that standard methods fail to properly account for underwriter price stabilization and adequately capture variations in information asymmetries related to firm size. We find that results from the long-standing methods for estimating underpricing relations are robust to one’s choice of size proxy. We obtain consistent estimates of underpricing determinants from censored regressions of first-day returns and from least squares regressions of longer horizon returns, whereas estimates from the mixed distribution proposed by Arugaslan et al. (2004) are sensitive to distribution assumptions and starting values.

• Smart, S. B., and Megginson, W. (2008), Introduction to Corporate Finance (2nd Edition). Mason, OH: Cengage South-Western.
• Smart, S. B., Megginson, W., and Gitman, L. (2007). Corporate Finance (2nd edition). Mason, OH: Cengage South-Western.
• Smart, S. B., and Zutter, C. J. (2003). Control as a Motivation for Underpricing: A Comparison of Dual- and Single-Class IPOs. Journal of Financial Economics, 69(1), 85-110.

  Abstract

  Abstract

  We find that dual-class firms experience less underpricing than single-class firms and explore several hypotheses which explain this phenomenon. Compared to single-class firms, dual-class companies have slightly higher post-IPO institutional ownership and experience fewer control events. Although dual-class firms achieve a lower underpricing cost, they trade at lower prices relative to earnings and sales than single-class IPOs. This pricing differential, combined with evidence that dual-class managers earn higher compensation and that dual-class shares are common among media and entertainment industry IPOs, suggests that dual-class ownership structures protect private control benefits.

• Smart, S. B., and Greene, J. (1999). Liquidity Provision and Noise Trading: Evidence from the 'Investment Dartboard' Column. Journal of Finance, 54(5), 1885-1899.

  Abstract

  Abstract

  How does increased noise trading affect market liquidity and trading costs? We use The Wall Street Journal’s “Investment Dartboard” column, which stimulates noise trading, as a natural experiment to evaluate models of the bid-ask spread. We find that substantial increases in trading volume and significant but temporary abnormal returns occur when analysts recommend stocks in this column, especially when recommendations come from analysts with successful contest track records. We also find an increase in liquidity and a decrease in the adverse selection component of the bid-ask spread.

• Smart, S. B., and Waldfogel, J. (1996). Tax Policy, Saving, and Pension Funding. In Pensions, Savings, and Capital Markets. U.S. Department of Labor.

  Abstract

  Abstract

  In this paper we examine whether individuals adjust their savings behavior in response to changes in employer contributions to defined benefit pension plans.  We find that as employers reduce their contributions in response to higher-than-expected returns on investments, individuals do not offset those reductions, resulting in a net reduction in saving in response to higher interest rates.

• Smart, S. B., and Waldfogel, J. (1994). Measuring the Effect of Corporate Restructuring on Performance: The Case of Management Buyouts. Review of Economics and Statistics, 76(3), 503-511.

  Abstract

  Abstract

  Recent research has attempted to document that the financial gains associated with takeovers, LBOs, and other types of restructuring are attributable to subsequent improvements in operating performance. In this paper, the authors develop a more general framework for measuring the effect of corporate restructuring on performance and apply the framework to a sample of firms taken private by their management. They demonstrate that the estimation approaches employed in the literature embody restrictions on the general framework which the data can reject. However, the authors' best estimates provide evidence that management buyouts improve corporate performance, and the magnitudes of these improvements are similar to existing estimates.

• Shoven, J. B., Smart, S. B., and Waldfogel, J. (1992). Real Interest Rates and the Savings and Loan Crisis: The Moral Hazard Premium. Journal of Economic Perspectives, 6(1), 155-167.

  Abstract

  Abstract

  Real interest rates rose to historically high levels in 1980 and remained high throughout the decade. Macroeconomists attribute this phenomenon to a combination of tight monetary policy, fiscal deficits, and variable inflation rates. This paper presents preliminary evidence for an additional explanation of high real rates that is related to the decade-long crisis in the savings and loan industry. Deposit insurance, moral hazard, and regulatory forbearance provide the incentives and the means for insolvent thrifts to issue liabilities that compete with Treasury securities in the market for funds. Thus, as the magnitude of the thrift crisis grew during the 1990s, so did pressure on Treasury yields. Even if the effect of the S&L crisis on interest rates is small, the increased cost of financing the public debt adds significantly to the total costs associated with the savings and loan fiasco.

Edited on September 1, 2023