The Pricing and Performance of Initial Public Offerings in Australia, 1996-2007: A Comparison of Ordinary, Venture Capital and Private Equity-Backed Issues

Abstract

This paper examines the pricing and performance of ordinary, venture capital and private equity-backed initial public offerings in the Australian stock market from June 1996 to May 2007. Headline underpricing, underpricing issuer loss, underpricing loss by market value, and underpricing loss by issue price are used to measure underpricing. Cumulative buy-and-hold abnormal returns with equal and value-weighted market indexes, market and book-to-market value quintile adjustments and the Fama-French three-factor model used to compare performance. The measures of underpricing indicate that venture capital and private equity-backed issues are less underpriced than ordinary issues. Further, all three forms of issuance outperform the nominal performance benchmarks. However, there is no statistically significant difference in the risk-adjusted performance of initial public offerings, regardless of backing.