ONUR BAYAR. Carnegie Mellon University, GSIA, Pittsburgh, PA MS in Financial Economics, May 2002

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1 ONUR BAYAR Department of Finance, 270 Babcock St #17J Chestnut Hill, MA Boston, MA Phone: (617) Phone: (617) Webpage: AREAS OF INTEREST Research: Theoretical and Empirical Corporate Finance, with emphasis in Venture Capital and Entrepreneurial Finance; Market Microstructure. Teaching: Corporate Finance, Entrepreneurial Finance and Venture Capital, Private Equity and Investment Banking, Financial Institutions, and Capital Markets. EDUCATION, Chestnut Hill, MA 2002-Present Ph.D. in Finance, expected 5/2007 Dissertation Title: Essays in Corporate Finance. Dissertation Committee: Thomas J. Chemmanur (Chair), Hassan Tehranian, Alan Marcus, and Robert A. Taggart. Carnegie Mellon University, GSIA, Pittsburgh, PA MS in Financial Economics, May 2002 University of Pittsburgh, Pittsburgh, PA MS in Industrial Engineering, August 1999 Bogazici University, Istanbul, Turkey BS in Industrial Engineering (with Honors), June 1998 WORKING PAPERS IPOs or Acquisitions? A Theory of the Choice of Exit Strategy by Entrepreneurs and Venture Capitalists, with Thomas J. Chemmanur, IPOs versus Acquisitions and the IPO Valuation Premium Puzzle: An Empirical Analysis A Dynamic Model of a Limit Order Market Onur Bayar 1

2 RESEARCH IN PROGRESS Management of Innovation, with Thomas J. Chemmanur, and Mark Liu, University of Kentucky Acquisitions after IPOs: A Solution to the Double-Exit Puzzle PUBLICATIONS Modeling Probability Distributions from Data and Its Influence On Simulation, Wolfgang Hörmann, Onur Bayar, In: I. Troch and F. Breitenecker (eds.), 2000 Proceedings IMACS Symposium on Mathematical Modeling, Argesim Report No. 15, pages CONFERENCE AND SEMINAR PRESENTATIONS IPOs or Acquisitions? A Theory of the Choice of Exit Strategy by Entrepreneurs and Venture Capitalists - The Financial Intermediation Research Society (FIRS) Conference on Banking, Corporate Finance and Intermediation, Washington Area Finance Association Conference, Financial Management Association (FMA) Annual Meetings, FMA Special PhD Student Paper Session, Seminar at, IPOs versus Acquisitions and the IPO Valuation Premium Puzzle: An Empirical Analysis - Seminar at, FMA Doctoral Student Consortium, 2006 TEACHING EXPERIENCE, Instructor (Independent Charge of the Course): Basic Finance (MF021, undergraduate), Spring 2006 Teaching Assistant: Management of Financial Institutions (MBA/MSF), Fall 2004, Fall 2005; Investments (MBA/MSF), Spring 2005 Carnegie Mellon University, Graduate School of Industrial Administration Teaching assistant: Corporate Finance (MBA), Macroeconomics (MBA), Spring 2002 University of Pittsburgh, School of Engineering, Teaching assistant: Linear Programming, Statistics, Probability, Engineering Economy Onur Bayar 2

3 HONORS AND AWARDS,, 2002-Present Graduate Fellowship Carnegie Mellon University, William Larimer Mellon Fund Fellowship University of Pittsburgh, Scholarship Bogazici University, 1998 Honorary Graduation Certificate Bogazici University, Merit-based Scholarship Turkish National Government, 1993 Scholarship for undergraduate education in USA for top 200 Turkish students in the University Entrance Exams, Ranked #49 in the national exam among 1.5 million students PROFESSIONAL AFFILIATIONS Member of American Finance Association (AFA), Financial Management Association (FMA) OTHER PROFESSIONAL EXPERIENCE 10/99-04/00, DaimlerChrysler, Werk Sindelfingen, Germany Database Designer and Manager at QM/QKT Department Overhauled and redesigned the database management system of QKT-SAP team Trained and taught the employees to use the system 09/99-10/99, Center of Emergency Medicine, Pittsburgh-PA, USA Database Designer Improved the clinical site sign-up scheduling database system 06/97-07/97, Istanbul Stock Exchange ISE, Turkey Research Assistant at the Research Department Completed a research paper on mutual funds performance in Turkey in the period between Completed a research project on Index Option Pricing in ISE 06/96-07/96, Turkish Glass Industries Inc., Turkey Project Assistant at the Computer & Information Systems Department Onur Bayar 3

4 Learned and assisted Computer Aided Design trainings Assisted a design project funded by Turkish Association of Science and Technology OTHER SKILLS Computer: Java, Oracle, SQL, C, Visual Basic, STATA, SAS, MATLAB, Microsoft Office applications Designed a database system to track subscriptions and concert programs for a symphony orchestra Designed a 3-tier RMI server application embedded into an Oracle database system. Languages: English-advanced, German-advanced, French-elementary, Turkish-native EXTRACURRICULAR ACTIVITIES Member of the Choir of Young Singers at the Turkish State Radio & TV Hobbies: classical music, literature, learning foreign languages REFERENCES Thomas J. Chemmanur (Chair) Hassan Tehranian Professor of Finance Professor of Finance and Chairperson of Finance Department Chestnut Hill, MA Phone: (617) Chestnut Hill, MA E- mail: chemmanu@bc.edu Phone: (617) E- mail: tehranih@bc.edu Alan Marcus Robert A. Taggart Professor of Finance Professor of Finance and Associate Dean for Graduate Programs Chestnut Hill, MA Phone: (617) Chestnut Hill, MA E- mail: alan.marcus@bc.edu Phone: (617) E- mail: robert.taggart@bc.edu Onur Bayar 4

5 ABSTRACTS: IPOs or Acquisitions? A Theory of the Choice of Exit Strategy by Entrepreneurs and Venture Capitalists We develop the first theoretical analysis of a private firm s choice of exit mechanism between IPOs and acquisitions in the literature. We consider an entrepreneur managing a private firm backed by a venture capitalist. The entrepreneur and venture capitalist desire to exit partially from the firm, motivated by the desire to satisfy their liquidity demands or to raise external financing for the firm (or both). Five important ingredients drive the firm s equilibrium choice between IPOs and acquisitions in our model. First, the success probability in product market competition may differ across firms: later stage ( higher type ) firms with a dominant product may be more viable against entry by competitors relative to earlier stage ( lower type ) firms with untested products. Second, while firm insiders have private information about this success probability, this information asymmetry may vary across exit mechanisms: while insiders information advantage over IPO market investors may be large, this information asymmetry relative to potential acquirers may be small. Third, while a stand-alone firm has to fend for itself in product market competition after going public, an acquirer may be able to help increase the private firm s success probability in product market competition ( synergy ). Fourth, while the IPO market would value the firm s equity competitively, acquirers will have considerable bargaining power, allowing them to extract some of this net present value from firm insiders. Fifth, while the entrepreneur derives benefits of control (as well as cash flow benefits) from managing the firm (and will lose these in the event of an acquisition), the venture capitalist will make the exit choice based on financial considerations alone. In this setting, we derive a number of testable predictions regarding the equilibrium choice between IPOs and acquisitions. We also provide a resolution to the empirical finding that many firms which are able to obtain higher valuations in the IPO market never the less choose to be acquired (the IPO valuation premium puzzle ). IPOs versus Acquisitions and the IPO Valuation Premium Puzzle: An Empirical Analysis Using a hand-collected data set of private firm acquisitions and IPOs, this paper presents an empirical analysis of a private firm s choice between IPOs and acquisitions, and develops the first empirical analysis in the literature of the IPO valuation premium puzzle (where many private firms seem to choose to be acquired rather than to go public at higher valuations). In the first part of the paper, I test several new hypotheses regarding a firm's choice between IPOs and acquisitions and develop several new empirical findings consistent with the theoretical predictions of Bayar and Chemmanur (2005). First, firms operating in less concentrated industries characterized by the absence of a dominant market player, (and therefore more viable against product market competition) are more likely to go public rather than be acquired. Second, firms facing a greater extent of information asymmetry in the equity market, more capital intensive firms, and those operating in industries characterized by greater private benefits of control, are more likely to go public rather than to be acquired. Third, the likelihood of an IPO over an acquisition is greater for venture backed firms and those characterized by higher pre-exit sales growth. Finally, I document that the passage of the Sarbanes-Oxley Act has motivated a larger proportion of firms to favor acquisitions over IPOs. My analysis of private firm valuations in IPOs and acquisitions in the second part of the paper indicates that IPO valuation premia disappear for larger firms after controlling for various factors affecting a firm s choice between IPOs and acquisitions. Further, after controlling for the long run component of the expected payoff to firm insiders from an IPO exit (as suggested by Bayar and Chemmanur (2005)), I find that the IPO valuation premium vanishes even for smaller venture backed firms and shrinks substantially for non-venture backed firms as well. Onur Bayar 5

6 A Dynamic Model of a Limit Order Market In this paper, we develop a new dynamic model of optimal order placement in a limit order market. We characterize and analyze the equilibrium order placement strategies of traders in terms of the state of the limit order book and the execution probabilities of limit orders. We solve for the equilibrium of the model numerically and analyze its properties by performing comparative dynamics analysis. The changes in the steady state distribution of the limit order book and optimal order placement strategies as a result of changing the variability of a trader's liquidity demand in our experiments reflect the changes in the economic trade-off between execution risk and the size of the potential trading gains. We analyze how changes in the dispersion of traders' private valuations and the price bin can lead to some specific patterns in our model in interaction with the optimal trading strategies. We also analyze how the optimal trading strategies and equilibrium order flow variations depend on changes in the state of the current limit order book. The effects of equilibrium quote depths on the equilibrium trading strategy is determined by the time and price priorities of the existing limit orders in the book. We observe that equilibrium order flow composition between market and limit orders in the model is robust to changes in the exogenous parameters of the model if the valuation distribution is symmetric around the price bin and the price bin has the same tick size between each price level. Onur Bayar 6