A Comparative Study of Initial Public Offerings in Hong Kong, Singapore and Malaysia

This paper presents the findings of a study on the performance of the initial public offerings (IPO) of shares listed on the Hong Kong Stock Exchange (HKEx), which has been the largest IPO market in the world since 2009. One indicator of the success of an IPO is its subscription rate, which can be used as a proxy for the level of investor confidence in the stock being offered. This paper examines the relationship between the performance of an IPO and its subscription rate, and the corporate factors that may affect an investor's decision to subscribe to an IPO. The Hong Kong evidence can help shed light on the importance of agency cost in the pricing of IPOs.

PurposeThis study aims to outline the research field of initial public offerings (IPOs) pricing and performance by combining bibliometric analysis with a systematic literature review process.Design/methodology/approachThe study uses over three decades of IPO publication records (1989–2020) from Scopus and Web of Science databases. An analysis of keyword co-occurrence and bibliometric coupling was used to gain insights into the evolution of IPO literature.FindingsThe study categorized the IPO research field into four primary clusters: IPO pricing and short-run behaviour, IPO performance and influence of intermediaries, venture capital financing and top management and political affiliations and litigation risks. The results offer a framework for delineating research advancements at different stages of IPOs and illustrate the growing interest of researchers in IPOs in recent years. The study identified future research potential in the areas of corporate governance, earning management and investor sentiments related to IPO performance. Similarly, the study highlighted the opportunity to test multiple theoretical frameworks on alternative investment platforms (SME IPO platforms) operating under distinct regulatory environments.Originality/valueTo the best of the authors’ knowledge, this paper represents the first instance of using both bibliometric and systematic review to quantitatively and qualitatively review the articles published in the area of IPO pricing and performance from 1989 to 2020.

In this study, we look at the effects of using different offering methods and examine whether the auction system is a better way of rationing IPOs in the sense of reducing the degree of underpricing. Preliminary findings show that IPOs offered via the auction system appear to have lower underpricing. However this is not confirmed by cross-sectional regression analysis. Results show that only the subscription rate is significantly associated with the degree of underpricing. The other variables such as the market of listing, the price earnings ratio at time of issue and the first day relative volume are not significantly related to the underpricing. The second part of the study compares fixed price initial public offerings (IPOs) listed on the Stock Exchange of Singapore Dealing and Automated Quotation System (SESDAQ), the second tier stock market in Singapore, with fixed price IPOs listed on the Main Board. The PE ratios at time of issue and subscription rates of SESDAQ IPOs are significantly lower than Main Board IPOs. Their initial market-adjusted returns are also lower but not significantly so. In the post-listing period, a different picture is seen. SESDAQ issues have significantly higher returns than Main Board IPOs.

Initial Public Offerings (IPOs) serve as a critical mechanism for companies to raise capital and transition to public ownership. However, one of the most persistent and widely studied phenomena in IPO pricing is underpricing, where the offer price is deliberately set below market value, leading to substantial first-day listing gains. This study investigates the extent, determinants, and implications of underpricing in fixed-price IPOs in the Indian market. Using a dataset of 123 IPOs listed on the National Stock Exchange (NSE) between 2015 and 2020, the research analyzes key factors influencing underpricing, including investor sentiment, firm characteristics, industry sector trends, and market conditions. The findings reveal that subscription rate is the strongest predictor of first-day returns, with highly oversubscribed IPOs experiencing significant listing gains. Additionally, IPOs launched in bullish markets and within high-growth sectors, such as technology and consumer goods, exhibit greater underpricing than those in financial services and manufacturing. However, while underpricing generates immediate gains, its long-term impact is often negative, as excessively underpriced IPOs tend to underperform over extended periods, suggesting overvaluation risks. This study provides valuable insights for investors, issuers, and regulators, emphasizing the need for balanced IPO pricing strategies. The research also highlights the role of SEBI’s regulatory framework in mitigating extreme underpricing while ensuring efficient price discovery in the Indian capital market.

The legal foundation of the Turkish Real Estate Investment Trust (REIT) structure, put in place in 1995, is considerably different and more complex than those observed elsewhere and predates those in Singapore, Japan, France, and the UK. Our paper builds on the unique legal and institutional details about Turkish REITs, as elaborated in Erol and Tirtiroglu (2011), and studies the pricing of their initial public offerings (IPO) between 1996 and September 2014. Turkish REITs enjoy complete flexibility in their dividend policy while being exempted from corporate taxes and also exhibit a legally mandated concentrated ownership structure. Further, they have some legally allowed flexibility in the asset allocation of their portfolios. While Turkey exhibits substantial macroeconomic uncertainty early on, it abates quite visibly, even during the Global Financial Crisis, since mid-2000s. We document empirically underpricing in the late 1990s and early 2000s and then fair or overpricing in late 2000s and early 2010s. This finding differs from those of no underpricing for REIT IPOs from the US market beyond the late 1990s. As a control sample, we also focus on all non-REIT Turkish IPOs issued during the same sample period and offer comparative evidence on the pricing of REIT and non-REIT IPOs.

e19405 Background: Developing oncology drugs demands substantial investment despite high uncertainty of success and ultimate market value. High drug costs have become subject to recent controversy. We sought to analyze factors influencing success in bringing new drugs to market using stock performance as a surrogate. Methods: Stock screeners and lists of initial public offerings (IPOs) captured small and mid-cap drug companies with share price ≥ $1.00 on major US indices. Share price was obtained from IPO to 03/09/2019. Company websites provided: headquarters (HQ) location, number/nature of drug programs (oncology vs. not, immunotherapy, gene editing, RNA-targeted, CAR-T). Funding to physicians and teaching hospitals (CMS funding) was acquired via CMS.gov Open Payments, and categorized into contributions < or ≥ $100,000. Stock performance was considered good (+ ≥25%), average (+/- 25%), or poor (- ≥25%). Univariate and multivariate associations were assessed for all companies; a subset analysis included only oncology-focused companies. Results: 420 companies were included. 101 companies (24%) had good, 76 average (18%), and 243 poor (58%) performance. Associated with performance in univariate analysis: IPO price ( P < 0.001), time from IPO ( P < 0.001), number of drug programs ( P = 0.019), and CMS funding ( P = 0.00013), with a strong trend for diverse pipelines that included both oncology and non-oncology programs ( P = 0.069). On multivariable analysis, IPO price was inversely associated ( P < 0.0001), while CMS funding ( P < 0.0001) and greater number of drug programs ( P = 0.0025) were positively associated with performance. Within the sub-analysis of oncology companies, 178 were included. 44 (24.7%) had good, 30 (16.9%) average, and 104 (58.4%) poor performance. The following were associated with performance on univariate analysis: IPO price ( P < 0.001), time from IPO ( P < 0.001), HQ location ( P = 0.009), diverse pipelines (P = 0.016), and CMS funding ( P < 0.001). On multivariable analysis, IPO price was inversely associated ( P < 0.0001), while California HQ location ( P < 0.01), diverse pipelines ( P = 0.028), and CMS funding ( P = 0.0002) were positively associated with performance. Conclusions: The majority of included companies had lackluster stock performance suggestive of low potential for drug success and high probability of financial disaster during development. Diverse pipelines and academic collaboration seem to be strongly related to success. This is the first study to demonstrate association between CMS funding and pharmaceutical stock performance.

10 - The Price and Operating Performance of Initial Public Offerings

The number of initial public offerings (IPOs) in the United States has been much lower since 2000 than in the preceding two decades, although there was a surge in IPO activity in 2021. The Securities and Exchange Commission (SEC) has attempted to reduce the regulatory and cost burdens of going public. Important new developments in the U.S. IPO market include confidential filings, testing the waters, direct listings, and special purpose acquisition companies (SPACs). Related research sheds light on whether the new developments can help capital formation and lower the costs of going public. Also relevant are the motives for going public, new insights into IPO pricing, institutional investors’ pre-IPO investments, and the consequences of firms’ IPO decisions. In the U.S., the majority of IPOs have used the bookbuilding mechanism, which involves generating and recording investors’ buying interests. Different companies prefer different mechanisms for going public. Bookbuilding is valuable for companies that face uncertainty regarding investor demand. A private firm may prefer selling itself to a publicly traded acquiring firm over an IPO in order to expand more quickly by utilizing the acquirer’s capital and established platform. A high-growth firm may prefer a merger with a SPAC over a traditional bookbuilt IPO due to the ability to use solid forecasts to increase the stock’s valuation. And companies with strong brand recognition or easy-to-understand business models, but no immediate cash needs, may find a direct listing more attractive, especially when their insiders have large diversification or liquidity needs. The SEC and other regulatory agencies should embrace and enhance these alternative mechanisms. Economies-of-scope considerations, globalization, regulatory and disclosure requirements, and the relative costs of public versus private capital all play a part in firms’ decisions to go public. Careful examinations of the benefits and costs are still needed. Possible widespread use of confidential filings and testing-the-waters communications after the regulatory changes initiated by the 2012 JOBS Act can substantially influence information production, IPO decisions, and IPO pricing. Private companies have increasingly used direct listings and SPAC mergers to go public, and emerging evidence suggests these methods will continue to evolve. Several recent papers have examined IPO underpricing across countries, and their findings are consistent with both information-asymmetry-based explanations and those based on issuer–underwriter conflicts. Information asymmetry helps explain the 7% average IPO underpricing in the U.S. during the 1980s. However, explanations based on agency problems, underwriter power, and issuer complacency are instructive for understanding the average underpricing of over 18% for all IPOs since then or over 50% for large subsets that can be identified ex ante. Future research would be useful to shed light on the predictability and magnitude of IPO underpricing, as well as on the effects of regulations and issuer–underwriter conflicts on underpricing. Recent research shows that IPOs have far-reaching effects. They not only influence the financing and investment policies of the issuing companies, but also have spillover effects to other companies, local communities, and labor markets.

The Seller's Curse and the Underwriter's Pricing Pivot: A Behavioral Theory of IPO Pricing

What Drives the Initial Market Performance of Italian IPOs? An Empirical Investigation on Underpricing and Price Support

Do Export Activities Matter for the Performance and Survival of IPO Firms?

It is believed that underpriced initial public offerings (IPOs) are undervalued. To empirically test this belief, the present study examines valuation of 292 Indian IPOs listed from 2004 to 2013. In this regard, three questions are posed: first, whether the valuation (P/E multiples) of the industry and comparable peer can explain valuation (‘offer price P/E’ multiple) of IPO firms; second, whether the IPOs are undervalued or overvalued in relation to industry peers; and third, whether the IPOs undervalued (overvalued) in relation to peers are underpriced (overpriced). The results suggest that industry and comparable peer valuations do explain IPO valuation. It was found that there are both undervalued and overvalued IPOs in India. However, IPOs can be underpriced regardless of whether they are undervalued or overvalued in relation to industry/peers. Therefore, retail investors should not consider all underpriced IPOs as undervalued and cheap. IPOs may be priced above industry and yet generate positive initial returns (be underpriced). The IPOs valued below the comparable peers can generate higher initial returns. Thus, the present study contributes in providing relation between pricing and valuation of IPOs in India using industry/peer benchmark provided in prospectus so that retail investors can take appropriate decision about subscribing for an IPO.

IPO (Initial Public Offerings) pricing is a systematic and complicated task that directly determines whether the capital market is able to function in a healthy way. As China's stock market goes through ups and downs, China Securities Regulatory Commission generally adopts a positive strategy. Therefore, to weaken the policy factors, 48 cases of IPO companies dated from January 2014 to February 2014 (before price guidance of 23x P/E ratio ceiling) are selected as samples and an approach of grey relational analysis is adopted to analyze the degree on which different factors are able to have an influence. The results show that in general, internal enterprise value factors are likely to play a more important role when compared with external environmental factors. More specifically, profitability, growth potential, operating efficiency, industry characteristics, solvency, capital scale and structure are factors that are more influencing on the offering price, while the market overview and individual stock overview are ones that play a less important role. Based on these results some policy suggestions with regard to IPO pricing are also offered.

Does aggressiveness help? Evidence from IPO corruption and pricing in China

This study investigates the impact of ongoing relationships between underwriters and institutional investors on Initial Public Offerings (IPO) pricing. Differently from previous studies that are focused on allocations of underpriced shares we propose a model of primary market pricing in which the incomplete adjustment of the offer price to its maximum achievable level depends on the intensity of interactions that occurred between players in the years before the IPO. Using a stochastic frontier approach on a sample of 1 677 US IPOs between 2000 and 2016 the paper shows that the more investment banks and investors regularly work together the more the IPO offer price is set closer to the fair value of the issuing firm. This analysis helps to disentangle the ambiguous effects of underwriters’ discretion on IPO primary market pricing when bookbuilding is used. We then support the idea that banks can maximize value to issuers by fostering a regular clientele of investors.