Lubos Pastor and Pietro Veronesi, finance professors at the University of Chicago Graduate School of Business, won the NASDAQ Award for the best research paper on capital formation presented at the 2008 annual conference of the Western Finance Association, June 22 in Waikoloa, Hawaii.
Lucian Taylor, a Chicago GSB Ph.D. student, was a co-author of the paper and shares in the award.
Their paper, “Entrepreneurial Learning, the IPO Decision, and the Post-IPO Drop in Firm Profitability,” is forthcoming in the Review of Financial Studies.
They studied more than 7,000 initial public offerings (IPOs) in the U.S. through the lens of a new model of the optimal decision to go public.
An entrepreneur trades off diversification benefits of going public against benefits of private control, Pastor, Taylor and Veronesi note, adding that going public is optimal when the firm’s expected future profitability is higher. The model they developed in their winning paper predicts that firm profitability should decline after the IPO and that this decline should be larger for firms with more volatile profitability and firms with less uncertain average profitability.
Collaborative research by Pastor and Veronesi received three previous awards. They won the Barclays Global Investors Prize for the best paper at the 2006 European Finance Association conference, the 2006 Fama/DFA Prize for the best article in the Journal of Financial Economics (2nd place), and the 2003 Smith Breeden First Prize for the best article on asset pricing published in the Journal of Finance.
Pastor was also honored by the Western Finance Association last year when he won the 2007 Goldman Sachs Asset Management Award for the best paper in empirical investments. Pastor teaches MBA courses in investments and portfolio management. Veronesi teaches fixed income asset pricing, cases in financial risk management, and mathematical models of options pricing and their estimation.
Veronesi also teaches a PhD course in asset pricing. Veronesi joined the Chicago GSB faculty in 1997 after receiving a PhD in economics from Harvard. Pastor joined the Chicago GSB in 1999 after receiving a PhD in finance from Wharton