Higher IPO Research Articles

Local IPOs and Household Stock Market Participation

Abstract The decrease in companies going public has received widespread attention, and the associated costs are widely debated. We document high local IPO activity leads to increases in stock market participation of 5–6%. This is striking given that such participation represents a key factor toward building wealth. Local IPOs increase both households’ propensity to own stock and their percent equity holdings. The attention channel drives effects: local IPOs attract attention to the market, through increased information production and publicity. The wealth channel has little influence, consistent with local IPOs not generating wealth shocks for most households.

Who Performs Better? The Roles of Acquisition and Scaling on Performance of High Growth IPO Firms

Who Performs Better? The Roles of Acquisition and Scaling on Performance of High Growth IPO Firms

Long-Term Performance Puzzle: High Growth IPO Firms and the Moderating Role of Post-IPO Strategies

Long-Term Performance Puzzle: High Growth IPO Firms and the Moderating Role of Post-IPO Strategies

The Impact of Investor Sentiment on IPO Price Suppression: Based on Empirical Analysis of ChiNext Sub-sectors

Since its establishment, China's stock market has had the characteristics of high IPO price suppression rate and investor investment sentiment, and since the prospect theory was proposed, investor sentiment has been considered to be an important factor affecting IPO price suppression. In this paper, a sample of 782 ChiNext IPO stocks from October 29, 2009 to December 31, 2020 is selected and the multiple regression model is used to empirically study the impact of investor sentiment on IPO price suppression. The empirical results show that market sentiment and individual stock sentiment have a significant positive impact on IPO price suppression. Further research found that in the sub-industry sample, the market sentiment was no longer significant, and the sentiment of individual stocks was still significant, while in the ChiNext non-manufacturing industry, the higher the market sentiment, the smaller the impact of individual stock sentiment on the IPO price suppression rate. Based on the research results, this paper puts forward relevant suggestions on the reform of information disclosure system, issuance mechanism and investor decision-making.

The Impact of Enterprise Innovation Level on IPO Underpricing under Registration System - Based on Signaling Theory

Background: Chinese capital market has continued to develop and mature recently. And in December 2021, the Central Economic Work Conference formally proposed the full implementation of the stock issuance registration system. In this context, the phenomenon of IPO underpricing has not been effectively alleviated in the Chinese capital market.Objective: This paper aims to analyze the impact of listed companies’ characteristics and underwriters’ underwriting level on high IPO underpricing in the Chinese capital market, find the main reasons for high IPO pricing, and ultimately help enterprises alleviate IPO high underpricing.Methods: Based on incomplete adjustment theory and signal transmission theory, this paper analyzes the impact of listed companies’ innovation level (R&D), governance level (CG), and underwriters’ underwriting level on high IPO underpricing in the Chinese capital market through the RE model and robustness test. And all the data are from the CSMAR database and related enterprise annual report search.Conclusion: Based on the signal transmission theory, this paper empirically finds that the high innovation level of enterprises can replace their active underpricing issuance by transmitting high-quality signals to investors, thus alleviating the phenomenon of high IPO underpricing in China. But the level of corporate governance is difficult to send a signal to investors, and underwriters have no significant impact on IPO underpricing. Therefore, the main reason for the high IPO underpricing in China is the active underpricing of the issuer. And enterprises bear the cost of eliminating information asymmetry through low-price issuance between enterprises and investors.

Long-run Stock Return of IPO Firms in India: Examining Investment and Profitability Hypothesis

The finance literature has analysed several aspects of the IPO market, namely, hot issue market, initial under-pricing, and long-run underperformance. Among them, findings of long-run underperformance are particularly significant as it indicates that investors incur losses on a perpetual basis by investing in a portfolio of IPO firms. According to the OECD (2019) , during 2009–2019, the number of IPO issuances by non-financial firms in India were the third-highest globally. In the case of India, only a few studies have investigated the long-run performance of IPO firms. Accordingly, the present study fills a void in this arena. The study, along with the conventional event study techniques, deploys the Fama-French Five-Factor model for analysis of long-run underperformance. The study estimates investment and profitbility factors for India following the methodology illustrated by Fama-French (2015) . The study finds that long-run underperformance by the IPO firms is not absolute but specific to the sample and methodology used for analysis. It also finds that underperformance is prevalent in high IPO volume years. The regression results for IPO firms as portfolios in the capital asset pricing framework do not show any long-run underperformance. This finding supports the conclusion that the long-run underperformance by IPOs reported in the previous studies results suffers from sample and methodology bias. The analyses in the five-factor framework show the plausibility of higher investment by IPO firms resulting in lower market return. IPO firms make above-industry-average capital expenditure, and their profitability converges with the industry after issue.

IPO Pricing, Investor Behavior, and IPO Underpricing of High‐Tech Companies: Evidence from SSE STAR Market and Nasdaq Market

There is a significant IPO underpricing phenomenon in the stocks of high‐tech companies on China Science and Technology Innovation Board (STAR Market). In order to analyze the causes of high IPO underpricing on STAR Market, from the perspective of investor behavior, this paper uses the Two‐tier Stochastic Frontier Model to decompose IPO underpricing into two parts, the pricing impact of the primary market and the transaction impact of the secondary market, and then studies the differences of the impact of different markets on IPO underpricing. The results show the following: (1) the primary market pricing of most stocks, that is, the difference between the issuance price of stocks and the real value of stocks is small, which shows that the primary market pricing has a weak impact on the IPO underpricing of the STAR Market, which in turn shows that the implementation of the registration system has significantly improved the IPO pricing efficiency of the STAR Market; (2) the closing price of most stocks fell on debut, that is, the trading price of stocks is significantly higher than its real value, which shows that the blind optimism of investors in the secondary market and the irrationality of investor structure are the main factors leading to the IPO underpricing of the STAR Market; and (3) through the variance decomposition and the robustness test of grouping the industry to which the enterprise belongs, the year of listing, and issuance and the size of the enterprise, we find that in different years and different industries, the impact of investor behavior in the secondary market on IPO underpricing is significantly higher than that in the primary market. In addition, the IPO underpricing of enterprises is not affected by the size of enterprises. This shows that the behavior of investors in the secondary market has always been the main means to affect the IPO underpricing of the STAR Market. This paper expands the analysis idea of IPO underpricing, which has a certain reference significance for the reform of STAR Market and the listing and financing of scientific and technological innovation enterprises.

Political power, local policy uncertainty and IPO pricing

Greater partisan alignment among lawmakers enhances their ability to respond rapidly to adverse shocks, but it also undermines the quality of checks and balances and encourages excessive governmental intervention in local areas aligned with the ruling party. We investigate how this form of local policy risk affects IPO underpricing. One standard-deviation increase in political alignment between local politicians and the federal government translates into an extra $1.58 million being left on the table, which corresponds to 5.39% of the average valuation discount. This effect is concentrated in firms that are vulnerable to legislative interventions and has important long-term implications. Our robustness analysis also shows that our baseline results are not sensitive to the inclusion/exclusion of influential states and years with high IPO activity.

Let us work together: The impact of customer strategic alliances on IPO underpricing and post-IPO performance

Leveraging the availability of three years of pre-IPO data and related vs unrelated-party customer information for Chinese firms, we examine the impact of customer strategic alliances (CSA) on IPO underpricing from 2007 to 2015. Our core findings suggest that IPO firms with CSAs have less IPO underpricing than those without such a relationship. The decrease in underpricing is more salient for IPO firms that have non-related-party customers. Additional analysis suggests that the core findings are primarily driven by firms with good information environment pre-IPO, including high audit quality, high analyst following, and low earnings management. We interpret the results as indicating that a good pre-IPO information environment enhances the credibility of CSA relationships and signals high IPO quality. Furthermore, we document that a CSA relationship has a positive impact on an IPO firm's post-IPO performance, especially when the firm has non-related-party customers. Overall, CSAs reduce IPO underpricing and enhance IPO returns post-IPO.

Investment Timing, Risk, Uncertainty, and Return: Evidence From Venture Capital Backed IPOs

We explain the returns obtained on venture capital (VC) investments in all VC backed companies going public in the U.S. between 2003 and 2017. Using a unique data set of 1,921 investor-IPO returns, we show that later investments obtain higher returns, even after controlling for observed and unobserved IPO company and VC investor characteristics. This is counterintuitive as later investments are believed to be less risky than early investments because business risk declines as firms mature. We show that the positive relationship between investment timing and return can be explained by risks and uncertainty related to the exit, in this case IPO. High returns for late investments are obtained in more risky and uncertain IPOs and particularly by VC investors with high IPO reputation. We exclude other possible explanations, such as IPO ratchets for late investors, exit pressure due to short VC fund lifespan cycles, or unexpected funding needs before IPO that expropriate early investors.

How Does Private Firm Innovation Affect Anti-Takeover Provisions in Corporate Charters? Evidence from Firms Going Public

We make use of data on anti-takeover provisions (ATPs) and top characteristics hand-collected from IPO prospectuses to analyze the effect of the pre-IPO innovativeness and the top quality of private firms on the number and strength of ATPs in their corporate charters (formed at IPO). We test two opposing hypotheses: the value hypothesis, which predicts that more innovative private firms and those with higher top quality will include a larger number of (and stronger) ATPs in their corporate charters; and the management hypothesis, which makes the opposite prediction. Our empirical findings are as follows. First, firms with greater pre-IPO innovativeness (as measured by the number of patents and citations per patent) and higher top quality are each associated with a larger number of and stronger ATPs; the joint effect of pre-IPO innovativeness and top quality on the number and strength of ATPs is also positive. Second, the IPO market rewards firms with a combination of greater pre-IPO innovation productivity and stronger ATPs with higher IPO and immediate post-IPO secondary market valuations. Third, we use an instrumental variable analysis by exploiting the quasi-random assignment of patent applications to examiners with different grant rates to show that the above results are causal. Finally, firms with stronger ATPs at IPO have significantly greater post-IPO innovation productivity, measured by the quantity and quality of innovation. Overall, our findings support the long-term value creation hypothesis and reject the entrenchment hypothesis.

Investor attention and performance of IPO firms: Evidence from online searches

This paper examines whether abnormal investor attention has predictive power for IPO first day underpricing and long term underperformance. In particular, we employ the Baidu Index as the proxy for abnormal investor attention and find positive correlations between abnormal investor attention and IPO first day return, which indicates that a higher abnormal investor attention prior IPO would result in a higher IPO first day return. However, we find weak significant correlation between IPO long term underperformance and abnormal investor attention. We further investigate the interaction effect of IPO first day return and long term performance. The results show that IPO first day return has weak predictive power for long term underperformance.

VCs as Intermediaries in IPO and Trade Sale Exits: Evidence from Industry-Level Analysis in Europe and the U.S.

We examine the role of the VC as an intermediary between the portfolio firm and the new investors in the exit phase. To improve the understanding of VC’s role as a certifying agent, we model exit outcomes on an industry level. We do so, to analyze the VC’s role for the different exit conditions in the different industries. We find that the need for certification by the VC is conditional on the exit conditions within an industry and that certification by the VC is more important to exit to an IPO in industries with high IPO rates. The result indicates that VCs need to signal their ability as strong intermediaries to successfully exit their portfolio firms to an IPO if IPO investors face severe search and screening costs.

Loan Market Benefits of (High) IPO Underpricing

This paper provides evidence on the loan market benefits of IPO underpricing. We show that higher underpricing is associated with a significantly larger reduction of the issuer's post-IPO borrowing costs. The resulting interest savings are substantial, on average USD 3 million per year. Neither price revision before the IPO nor the first-week or -month stock return after the IPO has a similar effect, suggesting that underpricing plays a unique role in reducing the issuer's borrowing costs. The effect is concentrated in firms with a high demand for advertisements, suggesting that underpricing affects borrowing costs likely through a marketing channel.

VENTURE CAPITAL AND IPO UNDERPRICING IN CHINA

The stock pricing problem is a hot topic in the field of investment in China. Many investors, including speculative investors, have great enthusiasm in buying stocks that just finished IPO on the first day. It seems to be a very profitable deal because almost all the issue stock boost to a great extent at the end of the first trade day. However, with the investment strategy of short- wing trading, many investors tend to sell out the stock after a short time. What's more, the slow increase of company profit (E) and the high rate of P/E will result in selling climax. A large percent of the stock price drops off even below the issue price. To regulate the IPO issuing price, the China Securities Regulatory Commission (CSRC)set up a price inquiry system to help determine the price. Venture capital is quite popular in China because of the rapid increase of the economy. Many startups need help not only in the fund-raising part but also in market research, management, and development strategy. More importantly, getting the investment from famous Venture capital companies can bring in an excellent reputation, and invested companies will be considered as a project with a great development prospect and a good investment choice for ordinary investors. Almost all new issuing companies achieved the investment from foreign or local venture capital, will the attendance of venture capital influence the underpricing rate and the earnings yield of the stock is one of the problems we are going to research. Secondly, the underpricing phenomenon of IPO is not every obvious in the stock market of developed countries such as the USA, Japan, and the UK. What caused such a high IPO underpricing rate in China is another topic worthy of research and discussion. Last but not least, the investment strategy and trading mentality of Chinese investors is also a problem we would like to study.

The Influence of Government Regulation on IPO Underpricing

The IPO in China has been subject to the audit system, which imposes strict control over the pace of issuance of new stocks. The issuance of new stocks is relatively small, and there are also various restrictions on the issuance prices. High IPO underpricing rate and high turnover rate have always been unique to China’s new issue market. For this reason, this article begins with the causes of the high underpricing rate, and combines investor sentiment to study the effect of the new share issuance system on the IPO underpricing rate.

Incentive Fees: Do They Bond Underwriters and IPO Issuers?

This paper examines the impact of incentive fees in mitigating conflicts of interest between the IPO firms and their underwriters. Consistent with cost minimisation hypothesis, our results show that granting incentive fees to underwriters results in lower listing costs and high IPO proceeds. We find IPOs that are large, not cash constrained at the time listing and those underwritten by reputable underwriters are more likely to offer incentive fees. Further tests reveal that incentive fees are granted when the market is volatile, but the average listing costs as a proportion of gross proceeds is 9.328% compared to 12.293% for IPOs that do not provide incentives to their underwriters. The listing costs decrease by 6.724% specifically for IPOs that offer incentive fees. Overall, the evidence shows that large Hong Kong IPOs can minimise their listing costs and maximise their proceeds by offering incentive fees to their underwriters as part of their compensation package.

The Persistent Effect of Initial Success: Evidence from Venture Capital

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm's first ten investments predicts as much as an 8% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times to invest; but early success does lead to investing in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

Is the success of an issuer an investor success? Evidence from Polish IPOs

ABSTRACTThis article examines the factors that determine IPO success in raising equity capital, and how this success translates into investor success. The study is based on a sample of IPOs on the Warsaw Stock Exchange from 1998 to 2011. We find that pre-IPO profitability is a strong and positive signal for investors that translates into a higher offer price and therefore determines the success of the issuance. However, companies with high IPO success do not provide investors with better performance after going public, nor do they provide protection before the common phenomenon of long-term underperformance. A large-scale value migration between shareholders occurs in companies that achieve IPO success. The investor belief that pre-IPO profitability is a signal of the future earnings potential of an IPO firm indicates that they probably use simple heuristics and have a representativeness bias.

CEO Compensation after Harvester Director Departure

I examine the effects of board member departures on CEO compensation using a sample of high growth IPO firms. Agency theory predicts that a reduction in board monitoring by harvester directors (VCs and private equity investors) will result in an increase in CEO pay. I find that departures of the last harvester director on a board result in an immediate and lasting increase in CEO equity compensation, while prior departures by other harvester directors are not significant. The results hold even when controlling for other governance mechanisms such as CEO wealth, CEO turnover, board composition, and external blockholder ownership.