Abstract
The timing of an initial public offering (IPO) is a complex dynamic game in the stock market. Based on a dynamic game model with the real option, this paper investigates the relationship between pricing constraint and the complexity of IPO timing in the stock market, and further discusses its mechanism. The model shows that the IPO pricing constraint reduced the exercise value of the real option of IPO timing, thus restricting the enterprise’s independent timing and promoting an earlier listing. The IPO price limit has a stronger effect on high-trait enterprises, such as technology enterprises. Lowering the upper limit of the pricing constraint increases the probability that enterprises are bound by this restriction during IPO. A high discount cost and stock-market volatility are also reasons for early listing. This paper suggests a theoretical explanation for the mechanism of the pricing constraint on IPO timing in the complex market environment, which is an extension of IPO timing theory, itself an interpretation of the IPO behavior of Chinese enterprises. These findings provide new insights in understanding the complexity of IPOs in relation to the Chinese stock market.
Highlights
The discussion of the initial public offering (IPO) timing mechanism is one of the current hot topics in the field of corporate finance and financial market
We studied the pricing constraint in IPO timing, which is a valuable expansion of the IPO timing theory, and complements the lack of attention given to market regulation in the previous literature
Our results prove that the price constraint can significantly advance the IPO timing of technology enterprises, and the resulting insufficiency of financing may be one of the reasons why Chinese enterprises seek to make an IPO in the overseas market, which provides new insights for understanding the complexity of the IPOs in relation to the Chinese stock market
Summary
The discussion of the initial public offering (IPO) timing mechanism is one of the current hot topics in the field of corporate finance and financial market. We studied the influence of the pricing constraint on IPO timing based on a dynamic game model with the real option. The timing of an IPO is a complex multi-factor dynamic game, which is influenced by the enterprises themselves and the stock market fluctuations and market regulation policy. This paper analyzes the influence of market regulation, especially for technology enterprises, and this is an expansion of the IPO timing theory. Our results prove that the price constraint can significantly advance the IPO timing of technology enterprises, and the resulting insufficiency of financing may be one of the reasons why Chinese enterprises seek to make an IPO in the overseas market, which provides new insights for understanding the complexity of the IPOs in relation to the Chinese stock market.
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