Global Initial Public Offerings Research Articles

The effect of language on IPO underpricing: Evidence from a multinational research

This paper examines how language characteristics affect initial public offerings (IPO) underpricing. We conjecture that Future-Tense Reference (FTR) language characteristics will informally influence human cognition of future rewards, raise their investment sentiment, and thus affect IPO underpricing. Using a sample of 33,414 IPOs in 30 countries, we find evidence that issuing firms operating in weak-FTR environments tend to experience a higher level of underpricing than those in strong-FTR settings. Our results remain robust after controlling for other linguistic and cultural characteristics, using various fixed-effect structures, and adopting the instrumental variable approach. The positive relationship between weak FTR and IPO underpricing is less pronounced in countries (regions) with higher education levels and higher institutional shareholding ratios, supporting the role of FTR on human cognition. Furthermore, our findings provide evidence supporting that the linguistic characteristic of FTR can impact firms' IPO decisions and the market's liquidity. Overall, the result highlights the importance of informal linguistic characteristics in explaining global IPO underpricing differences.

International IPO Markets and a Foreign IPO Puzzle

We analyze a firm’s decision to conduct initial public offerings (IPOs) internationally. Global IPOs (issuing both domestically and abroad) raise significantly more capital in the international markets than any other form of IPO. Though over eight percent of firms conducting an IPO between 1995 and 2010 choose to conduct Foreign IPO (issuing only abroad), this form of IPO fails to raise significantly more proceeds than matching IPOs with similar firm characteristics. This constitutes a “Foreign IPO Puzzle.” We consider several explanations for this puzzle. Our results are consistent with firms attempting to take advantage of hotter IPO markets, more efficient pricing, better legal environment, better opportunities for a subsequent SEO, and stronger currencies. None of these hypotheses fully explains away this puzzle.

EUROPEAN IPO MARKET. GLOBAL AND REGIONAL STOCK EXCHANGES.

Purpose. This article provides analysis of the European Initial Public Offerings (IPO) market which is one of the biggest of the Global IPO markets. IPO provides a stock market launch, when shares of stock of a company are introduced to public at a stock exchange for the first time. IPO is an important source of finance resources for rapidly developing companies and a key step for them to become mature. Recent economic crisis has changed the landscape and the practice of IPO that should be reconsidered either from an investors point of view or from the company heading to the IPO. The article is also focused on identifying the roles of global and regional stock exchanges using example of development of London and Warsaw stock exchanges.Methodology. The article provides quantitative analysis of selected top performing European stock exchanges official reports and analytical papers of key audit and consulting experts. It is particularly focused on a number of IPO’s, volume of raised capital by year and by stock exchange within the period preceding the financial crisis of 2007-2008.Results. The article shows changes in the European IPO dynamics and change of roles of the European stock exchanges in post financial crisis. In particular it shows the growth of importance of the regional stock markets in the European stock exchange ecosystem and Warsaw Stock Exchange (WSE).Practical implications. Recent economic crisis has changed the landscape in the practice of making IPO’s. Company heading to IPO should take changes on the IPO market seriously and take regional IPO opportunity into consideration. Presented results could help to streamline IPO plans. Results could be of interest to investors to have a more detailed look at the highly performing regional stock exchanges.Value/originality. This article studies are based on the most current data collected by the author from the various stocks reports and the most respectable audit and consulting companies. Analysis and graphic materials are produced by the author.DOI: http://dx.doi.org/10.5755/j01.em.18.4.5726

The liability of foreignness in capital markets: Sources and remedies

The accelerating pace of global capital market integration has provided new opportunities for firms to raise capital abroad through global debt issues, cross-listings, and initial public offerings in foreign stock exchanges. However, existing empirical evidence suggests that foreign firms tend to be at a disadvantage compared with domestic firms, and they often suffer from investors’ “home bias”. The objective of this paper is to understand why firms are facing problems when accessing capital in foreign markets, and possible mechanisms that can help to mitigate these problems. It expands the liability of foreignness (LOF) research beyond the product market domain to include liabilities faced by firms attempting to secure resources in foreign capital markets. We identify key differences between product and capital markets related to information environment, time structure of transactions, and linkages between buyers and sellers. We analyze institutional distance, information asymmetry, unfamiliarity, and cultural differences as the main sources of capital market LOF (CMLOF). We suggest possible mechanisms that managers can employ to mitigate CMLOF and overcome investors’ “home bias”: bonding, signaling, organizational isomorphism, and reputational endorsements. We also outline directions for further theoretical and empirical development of the CMLOF research.

Changing underwriting practices on underpricing of U.S. global initial public offerings

We examine the underpricing of U.S. firms that went public globally ( Global IPOs) between 1986 and 2003. Our results suggest that, when compared to their peers that went public at home, U.S. issuers did not enjoy an advantage in issue costs from their global offerings. Their offers experienced substantial increases in underpricing, which exceeded that of their peers since the late nineties. We observe that the increased underpricing was accompanied by an overwhelming proportion of Global IPOs being underwritten by prestigious underwriters and backed by venture capitalists. In addition, Global IPOs accounted for an increasing percentage of total issues of U.S. firms in the late nineties. Further findings suggest that Global IPOs may be motivated by expanding investor demand under favorable overseas market conditions and increasing visibility through global placement.

Prestigious Stock Exchanges: A Network Analysis of International Financial Centers

In this paper, we use methods from social network analysis to assess the relative importance of financial centers around the world. Using data from virtually the entire universe of global equity activity, we present two sets of complete rankings for up to forty-five separate locations for the 1990-2006 period. The first phase of our analysis evaluates international stock exchanges based on their ability to attract global initial public offerings (IPOs). The second phase compares the capacity of these exchanges to provide an efficient trading platform for cross-listed companies. U.S. exchanges are effectively the unique hosts for cross-border equity activity originating from many other locations. Moreover, they are the destination of choice for most companies coming from locations with highly prestigious exchanges. We find that, despite a diminished ability to attract cross-border IPOs, U.S. exchanges have maintained an undisputable lead in global equity activity throughout the entire sample period. We do find evidence of the rising importance of competing exchanges - in particular, the London Stock Exchange, the Deutsche Borse, and the Hong Kong Stock Exchange - and also of an expanding role for a number of emerging market stock exchanges. However, this rising pattern reflects improved competitive conditions in a growing global market rather than a sudden decline in the activity of U.S. exchanges.

Recent SEC initiatives that should enhance access to the US capital markets by foreign private issuers

In recent years, non-US companies have been increasingly reluctant to list or publicly offer securities in the United States. According to the Committee on Capital Markets Regulation, in 1996, 45 per cent of global initial public offerings (IPOs)1 completed by non-US companies were listed on a US exchange. In the first nine months of 2007, this number fell to 10 per cent.2 A major factor contributing to this trend is the perceived legal and regulatory burden that accompanies a listing or public offering of securities in the United States.3 Evidence of this concern is the trend of non-US companies to raise capital in the United States by means of private placements in reliance on SEC Rule 144A rather than by public securities offerings registered with the SEC. Non-US companies that access the US capital markets only through Rule 144A offerings are exempt from the SEC disclosure...

Long-run performance of global versus domestic initial public offerings

This paper investigates the long-run performance of global IPOs as compared to purely domestic ones made by US industrial companies. We find that global IPOs not only underperform the market but also underperform their domestic counterparts in the three years after issuance. Moreover, global issues with a larger global tranche are more prone to long-run underperformance. The results are consistent with the window of opportunity hypothesis that investors are overly optimistic about the future prospects of firms engaging in global offerings, and underperformance occurs as unduly high expectations are corrected over time.

The pricing of global and domestic initial public offerings by US companies

This study examines the pricing of global initial public offerings made by US companies as compared to purely domestic offerings. We find that global participation can significantly reduce underpricing by about four percentage points. Moreover, the degree of underpricing declines as larger proportions of shares are allocated to foreign investors. Our results suggest that US companies time their global offerings when foreign demand for US shares is high. There is also evidence that global offerings alleviate the downward pricing pressure associated with new share offerings.