Abstract
This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks. Keywords: Prospectus disclosure, IPO performance, Thailand. JEL Classification: G14, G30, G32
Highlights
Security regulators in different countries require initial public offering (IPO) issuers, in accordance with the Securities and Exchange Commission (SEC) rules, to disclose the intended uses of proceeds in the Initial Public Offerings (IPOs) prospectus
For the Thai IPO market trends across different time periods, we found that the initial return was, on average, negative or as low as -1.01% only in 2006, whereas it is positive for the other year-periods, in particular the average IPO underpricing turns to be significantly higher in 2011 and 2012 (73.82%)
We find that the models (1)-(9) with a representative profile of IPO underpricing in the stock market of Thailand explain about 38.5% to 50.99% of variations in the IPO underpricing[1]
Summary
Security regulators in different countries require initial public offering (IPO) issuers, in accordance with the Securities and Exchange Commission (SEC) rules, to disclose the intended uses of proceeds in the IPO prospectus. We formulate the intended use-of-proceeds disclosure index for measuring the level of the disclosure and draw on hand-collected unique data on IPO subscription rates by foreigners and institutional investors as our additional proxies, sourcing these from electronic documents in the SEC library These data reveal a number of differences compared to past empirical literature that focuses on the presence or absence of forecast disclosure. Our paper provides a more extensive contribution to the literature by both using a more up-to-date dataset than the data samples used in previous studies on the Thai IPO market, and by analyzing the intended use-of-proceeds and IPO performance in two stock market segments, namely, SET and MAI.
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