Initial Public Offerings Market Research Articles

Global dynamics of the IPO market: structural analysis and growth prospects

The global IPO (Initial Public Offering) market continues to play a critical role in raising capital for companies across various economic sectors. However, its dynamics remain ambiguous due to cyclical fluctuations driven by economic, financial, and regulatory factors. The relevance of this topic lies in the increasing importance of understanding the forces shaping IPO success, given the globalization of financial markets and growing competition. A thorough examination of the factors that determine IPO performance and the future prospects of this mechanism is vital for stakeholders.The purpose of this paper is to conduct a comprehensive structural analysis of the global IPO market's dynamics, identify the key drivers of its development, explore regional differences, and assess the market’s growth potential amid ongoing global transformations. The focus of the study is the global IPO market, with particular attention to its economic, financial, and regulatory dimensions.The methodological approach centers on structural market analysis, utilizing statistical and comparative methods to explore market dynamics across different regions. The research is further grounded in an analysis of macroeconomic indicators, regulatory changes, investment trends, and technological advancements that influence the IPO market.This study examines the impact of financial market globalization, regulatory adjustments, and technological innovations on the development of IPOs in various regions worldwide. The role of macroeconomic stability, interest rates, and market volatility in shaping IPO demand is also explored. In addition, the research delves into sectoral differences and regional trends, particularly the activity of IPO markets in the U.S., Europe, and Asia.The conclusion addresses the growth prospects of the global IPO market amid continuous shifts in the global economy and provides practical recommendations for companies considering public offerings and investors interested in IPO market opportunities. The study highlights how firms can navigate these volatile conditions and what investors should consider when participating in IPOs.

An insight into the signaling role of Sharia status: a case from an emerging IPO market

Purpose This study aims to examine the potential of Sharia status as ex ante information to signal the quality of an issuing firm by improving the decision-making process of potential investors when assessing initial public offerings (IPOs) in an environment where information asymmetry is pronounced. Potential investors face challenges in evaluating and determining the true value of IPO issues, which inherently influences their decision-making. Consequently, this results in pronounced price fluctuations in IPO shares, leading to higher underpricing. Design/methodology/approach This study uses a sample of 350 IPOs listed on the Kuala Lumpur Stock Exchange (KLSE) between 2004 and 2021 to examine the signaling role of Sharia-compliance status. A three-model approach is used to ensure that the study's objectives are met. The first model investigates the effect of Sharia status on underpricing to determine whether the main beneficiary of such a signal is the investor or the issuer. The second model examines the effect of Sharia status on investor demand to determine if such a signal influences prospective investors' investment decision-making processes. The third model inspects the effect of Sharia status on investor divergence of beliefs to measure the signal's ability to reduce information asymmetry within the Malaysian IPO market. Findings The Malaysian IPO market relies heavily on the fixed-price mechanism, which exacerbates high information asymmetry, affecting potential investors' behavior, asset price formation and return generation on the first day of listing. The study results indicate that Sharia status does not have any signaling role in the Malaysian IPO market. This is because investors in the Malaysian market are driven by ex ante information that helps unveil relevant information that leads to capital gains. Furthermore, most new issues in the Malaysian IPO market fall under Sharia status, diluting the relevance of such information for prospective investors in determining profitable investments. Practical implications The findings highlight the challenges faced by issuing firms in estimating market demand due to limited premarket insights and the difficulties prospective investors face in identifying the quality of issuing firms. Efforts to provide more information on investor demand can reduce uncertainty and facilitate more informed decision-making. Originality/value This research stands as one of the pioneering efforts to provide an empirical explanation of the potential signaling influence of Sharia status in an emerging IPO market.

Machine learning insights: probing the variable importance of ex-ante information

PurposeEmpirical examinations of initial public offering (IPO) initial returns often rely heavily on linear regression models. However, these models can prove inefficient owing to their susceptibility to outliers, a common occurrence in IPO data. This study introduces a machine learning method, known as random forest, to address issues that linear regression may struggle to resolve.Design/methodology/approachThe study’s sample comprises 352 fixed-priced IPOs from the year 2004 until 2021. A unique aspect of this research is its application of the random forest method. The accuracy of random forest in comparison to other methods is evaluated. The findings indicate that the random forest model significantly outperforms other methods in all of the evaluated aspects.FindingsThe variable importance measure indicates that investors’ demand, divergence of opinion among investors and offer price are the most crucial predictors of IPO initial returns. These determinants hold particular significance due to the widespread use of the fixed-price method in Malaysia, as this method amplifies the information asymmetry in the IPO market.Originality/valueTo the best of the authors’ knowledge, this study is among the pioneering works in Malaysian literature to apply the random forest method to address the constraints of conventional linear regression models. This is achieved by considering a more extensive array of factors and acknowledging the influence of outliers. Additionally, this study adds value to Malaysian literature by ranking and identifying the ex-ante information that best signals the issuing firm’s quality. This contribution facilitates prospective investors’ decision-making processes and provides issuing firms with effective means to communicate their value and quality to the IPO market.

Driving Venture Capital Interest: The Influence of the Big 4 Audit Firms on IPOs

This paper investigated how hiring one of the Big 4 auditing firms helps initial public offering (IPO) owners attract venture capitalists’ (VCs) backing when going public to address the gap in auditing and venture capital literature. For this, the paper examined a large dataset from 1995 to 2019 consisting of 33,536 IPO firms from 22 countries with diverse socioeconomic, political, and cultural contexts. The study found that hiring Big 4 auditors increases IPO owners’ chances of recruiting VCs by up to 50%. The analysis also supports prior findings, which state that IPO owners strategically choose Big 4 audit firms to lower agency costs and send quality signals to improve openness and disclosure as well as boost VCs’ confidence in the IPO market. This research offers multiple benefits to academics, policymakers, investors, and issuers.

CEO characteristics and R&D expenditure of IPOs in China

In the rapidly evolving landscape of Mainland China's stock market, there is a substantial correlation between the research and development (R&D) spending of companies that are going through initial public offerings (IPOs) and the characteristics of the CEO. This study aims to investigate how CEO traits influence the allocation of resources towards R&D activities within the context of IPOs in Mainland China. The CEO plays a pivotal role in shaping the strategic direction and innovation agenda of companies, especially during the IPO process where firms seek to raise capital and expand their operations. Policymakers must comprehend the influence of CEO attributes on research and development spending, investors, and managers seeking to foster innovation and sustainable growth in Mainland Chinese firms. This research will focus on analyzing CEO traits such as educational background, prior experience, age, tenure, risk aversion, and management style, and their influence on the decision-making process regarding R&D investment. This study intends to determine significant links between R&D expenditure and characteristics of CEOs by looking at a sample of IPOs in the stock market of Mainland China. The analysis takes into account many factors like industry competition, market dynamics, regulatory environment, and firm-specific traits. Data on CEO traits, company finances, and R&D spending will be analysed using quantitative techniques like regression analysis and event research procedures. Furthermore, qualitative research techniques like case studies and interviews will offer deeper understandings of the contextual elements influencing the IPO market in Mainland China as well as the mechanisms underpinning these linkages. All things considered, this study will advance knowledge of how CEO traits affect R&D spending in the particular setting of initial public offerings (IPOs) on the stock market of Mainland China. The findings will offer valuable insights for policymakers, investors, and managers navigating the complexities of fostering innovation and sustainable growth in Mainland Chinese firms undergoing IPOs.

Intellectual capital and subscription rate: an empirical investigation in the Indian initial public offering market

PurposeThis study aims to investigate the impact of intellectual capital (IC) on investor demand (i.e. subscription rate). The rise of the knowledge economy motivates us to investigate how the value added by the IC of the issuing firms affects potential investors’ responses.Design/methodology/approachThis study investigates the impact of IC on initial public offering (IPO) subscription rates using 234 IPOs from March 31, 2010 to March 31, 2021. This study uses multivariate regression, including year and industry dummies, and conduct robustness tests with industry subsamples. Additionally, this paper uses an alternative demand proxy (i.e. listing day returns) and two-staged least squares to address endogeneity.FindingsThis paper documents an inverse relationship between investor demand and human capital efficiency alongside a positive correlation between investor demand and structural capital efficiency. Additionally, IC efficiency positively affects listing day returns, with individual investor demand significantly driven by institutional investors.Originality/valueThis study uses Pulic’s (2000) methodology for measuring IC and examines whether it reduces information asymmetry in the IPO market and encourages investors to subscribe to an issue. This study holds significant implications for IPO issuing firms, investors and regulators regarding the IC disclosure in the prospectus.

Can the Presence of Big 4 Auditors in IPO Prospectus Reduce Failure Risk?

This paper addresses a void in the research on auditing and initial public offering (IPO) failure by investigating the impact of the Big 4 auditing firms on the likelihood of an IPO failure. This research is the first comprehensive analysis of more than 33,000 global IPOs that either failed or were successful between 1995 and 2019 across a wide range of nations with vastly different regulatory, cultural, and economic settings. A cross-sectional probit regression model is utilized to investigate the influence of hiring the Big 4 auditing firms on IPO failure, building upon prior studies on IPO failure. We found strong evidence that IPO failure rates were diminished by up to 67% when one of the Big 4 auditing firms was involved in auditing the IPO prospectus. For IPO founders, hiring Big 4 auditors before an IPO is a quality signaling strategy that minimizes the risk of a failed IPO by reducing information asymmetry among IPO participants. Our findings provide useful policy implications. Hiring one of the Big 4 auditing firms before an IPO is a reassuring signaling strategy for founders, since it decreases information asymmetry among IPO investors and so lowers the risk of the IPO failing. Primary market investors now have access to credible evidence indicating that backing IPOs from companies that use the Big 4 auditing firms increases the likelihood of such IPOs being listed on stock exchanges and yields positive returns. This is the first time, as far as the academicians are aware, that conclusive evidence has been found of a strong inverse association between the presence of Big 4 audits and failure risk for IPO firms. Our research could be helpful to primary market regulators since it shows how crucial it is to encourage Big 4 audits in IPO companies. The quality work of the Big 4 auditors does lower the risk of failure in the IPO market, which might help owners of small private equities to list their firms on the IPO market, boosting economic growth.

UNDERPRICING OF IPOS (INITIAL PUBLIC OFFERING) IN BORSA ISTANBUL: THE EFFECT OF COVID-19 PANDEMIC PERIOD

Purpose- The research investigates the impact of the COVID-19 pandemic on Initial Public Offering (IPO) mispricing in the Turkish IPO market from 2010 to 2022. The study aims to offer valuable insights into the behavior of IPOs during this period, aiding investors and issuers in understanding the effects of the pandemic on IPO pricing. The findings may empower stakeholders, including investors, regulators, and market participants, to make more informed decisions in times of market volatility and uncertainty. Methodology- The study utilizes two methods, ordinary least squares (OLS) and quantile regression (QR), to analyze the impact of independent variables on IPO mispricing. OLS focuses on average effects, overlooking nuances in mispricing distribution. In contrast, QR allows the exploration of variable effects at different mispricing levels, accommodating the asymmetric distribution of returns. Employing QR helps identify specific impacts of variables on IPOs within distinct mispricing levels, addressing distribution heterogeneity observed in the sample. This robust approach enhances the study's ability to capture a more comprehensive understanding of the relationship between independent variables and IPO mispricing. Findings- The study reveals a substantial increase in IPO mispricing during the COVID-19 period, attributed to factors like heightened asymmetric information, reduced IPO volume, and decreased demand. Notably, the impact extends beyond the pandemic period, indicating a lasting effect on IPO mispricing. Sector-specific effects are observed, with all sectors, except Consumer Non-Cyclicals, showing significance in first-day returns. However, for 1-year returns, only the Finance and Energy sectors exhibit significance, with the latter slightly exceeding the 10% limit. Conclusion- The study provides robust evidence of increased IPO mispricing during the COVID-19 pandemic, highlighting the persistent impact of the crisis on financial markets, as well as sector-specific nuances influencing mispricing levels.

Аномалии IPO: влияние на эффективность первичных публичных предложений

The article explores the significant role of anomalies in the market for initial public offerings (IPOs), affecting both short-term and long-term stock outcomes upon entering the public market. It addresses the overarching issue faced by investors regarding the low efficiency of IPOs, characterized by a decline in securities’ value immediately after public listing. The article examines various anomalies and factors affecting IPO outcomes and discusses strategies for successful risk management and achieving desired investment results. It highlights the importance of considering underexplored aspects such as financial reporting distortions, information asymmetry, and insider manipulations, which are often encountered in IPOs but rarely studied in depth. This investigation into IPO anomalies aims to provide investors and companies with insights for making more informed decisions during IPOs and adapting their strategies according to market conditions, thereby contributing to a broader understanding of factors affecting IPO profitability. By recognizing and addressing these factors, investors and companies can better navigate the IPO process and achieve more favorable outcomes. Further research is needed to delve deeper into the complexities of IPO anomalies and their implications for market efficiency.

Conscientiousness and IPO first-day underpricing

We document that state-level conscientiousness is negatively associated with the initial public offering (IPO) first-day return. Exploring the economic mechanisms, we find that IPO firms originating in states that have a high level of conscientiousness experience longer IPO processes and hire more, but less reputable underwriters. Furthermore, issuers in highly conscientious states are less inclined to exchange IPO first-day return for coverage by all-star analysts. Our findings suggest that high conscientiousness stimulates issuers' negotiation incentives towards underwriters. These findings highlight state-level personality traits as a crucial determinant of IPO market pricing dynamics.

Inventor CEOs and financing of innovation: Evidence from IPOs

We examine the role of inventor CEOs—those with personal hands-on experience of innovation—in the financing of innovation. Using a sample of technology initial public offerings (IPOs) in the US, we document that inventor CEOs are associated with lower underpricing at the time of the IPOs. Inventor CEOs also appear more capable of taking their firms public during “cold” IPO market periods when financing conditions are more difficult. Analyses based on regulatory changes and a founder-only sample suggest that these relationships are causal. Further, inventor-led firms appear to invest the IPO proceeds more productively, as reflected in the firms’ superior innovation outcomes in the post-IPO period. The stock market fails to fully understand these relationships, and IPOs led by inventor CEOs produce large positive abnormal returns in the three years following the offering. Our findings are consistent with inventor CEOs facilitating innovation financing for startup firms by effectively reducing information asymmetry and valuation uncertainty of firm's innovation capital for outside investors.

Research on the Role of Investment Banks in the China’s IPO Market

Investment banks are essential players in today's dynamic capital market, serving as intermediaries that facilitate a wide range of financial activities crucial for economic growth and development. These activities encompass venture capital, project financing, mergers and acquisitions, corporate restructuring, securities issuance, and investment analysis. Investment banks must establish robust developmental frameworks and adapt to changing industry dynamics to remain effective and resilient in the face of evolving economic and financial landscapes. This research explores the role played by investment banks in the Chinese Initial Public Offering (IPO) market while considering the nation's historical context. China's financial evolution has been marked by unique historical events and economic reforms, which have significantly influenced its IPO market and the involvement of investment banks. Examining the interplay between these factors is vital for understanding the broader dynamics of the global financial system. It provides valuable insights into the strategies and adaptations required for investment banks to thrive in this complex environment. This study aims to contribute to the existing body of knowledge and inform industry stakeholders, policymakers, and investors about the intricacies of investment banking in China's IPO market.

Sponsor Co-investment, inquiry divergence, and IPO pricing efficiency

This paper measures the initial public offering (IPO) pricing efficiency of China's Sci-Tech Innovation Board and the growth enterprise market under the registration-based IPO system, with a novel focus on the mandatory sponsor co-investment system. Our findings reveal that this system improves IPO pricing efficiency and is crucial in mitigating capital constraints, overshadowing the influence of sponsor reputation. Additionally, the co-investment ratio reduces inquiry divergence among institutional investors, enhancing pricing efficiency. This study provides new insights into China's evolving IPO market dynamics and its regulatory mechanisms.

A Review of Research on Factors Influencing IPO Premiums

The IPO (Initial Public Offering) market has garnered increasing attention in recent years, and the IPO issue premium, as an important indication, is vital for both investors and firms. The purpose of this research is to investigate the elements that influence the IPO offering premium. This article discover numerous crucial factors after examining and organizing related papers. First, the registration system, including its development history, is a key component in determining the IPO issue premium. Second, the market environment, such as market volatility and market maturity, influences the IPO issue premium. Furthermore, investor mood has a significant impact on the IPO issue premium. Finally, the prominence and experience of underwriting organizations have an impact on IPO issuance premiums. This study verifies the impact of the aforementioned factors on IPO issuance premiums and makes some interesting results by gathering relevant data and employing appropriate statistical methodologies. With a better grasp of these aspects, investors and firms can make more educated investment decisions by better understanding the mechanism of IPO issuance premium development.

Intellectual Capital and Subscription Rate: an Empirical Investigation in the Indian Initial Public Offering Market <br>

Intellectual Capital and Subscription Rate: an Empirical Investigation in the Indian Initial Public Offering Market <br>

Performance of IPOs - A Detailed Analytical Study of IPOs During 2015-20

Initial Public offering (IPOs) are generally a first time offering of a company’s stock to the public. IPOs have had a strong significance all over the world as they act as an essential source of capital for companies to speed up their growth trajectory, as these funds help in the implementing new measures and strategic initiatives necessary for an unperturbed growth. This study includes the analysis of the performance of IPOs for the year [ 2015-2021] in detail and compares it with the short-term performance of a few select IPOs for the same range so as to understand which IPOs returns were more and is there any common factor leading to the same. The sample for this study includes all the IPOs listed in the Indian market for the selected year range. The resulting parameters of this study help in deriving the factors that led to the success or failure of IPOs in the market and provide a better understanding about the important factors involved throughout, Thus the results showcase factors such as brand awareness, Product placement and business models along with Investor sentiments are interconnected and have an effect on the performance of the IPOs. On the contrary, these findings help assess the current aspects of opportunities that lie in the IPO market with respect to long-term investments.

IMPACT OF ECONOMIC VARIABLES ON IPOs IN INDIA - AN ANALYTICAL STUDY

<p>This article aims to examine the hypothesis that local macroeconomic factors affect the volume of initial public offerings (IPOs) in a rising market, India, between 2015 and 2022. Initial public offerings (IPOs) are shown to have a positive correlation with industrial output and a negative correlation with interest rates. Using co-integration and Vector Error Correction models, we find a long-run equilibrium link between interest rates, industrial output, and initial public offerings (IPOs). Using a Markov regime-switching regression model, we also find that the effect of interest rates on IPO numbers is much more significant in the cold IPO regime than in the IPO hot regime. The empirical result seems to detect the IPO market's trend with a fair amount of accuracy. The findings demonstrate that a hot IPO market regime develops when investors start seeing extraordinarily high early returns, and their expectations about the future interest rate indicate the eagerness of entrepreneurs and managers to enter the IPO market. Conversely, a government's pursuit of monetary tightening causes investors to shy away from the IPO markets because they anticipate future profits will fall owing to rising interest rates and the price of shares will be harmed due to reduced dividend yield.</p><p> </p><p><strong>JEL</strong>: O10, O16</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0011/a.php" alt="Hit counter" /></p>

THE EFFECT OF FIRM CHARACTERISTICS ON THE UNDERPRICING OF IPO STOCK

Initial Public Offerings (IPOs) represent a critical mechanism for companies to raise capital by offering their shares to the public for the first time. This study investigates the determinants of stock underpricing in IPO companies listed on the Indonesia Stock Exchange between 2019 and 2022. Specifically, we examine the impact of return on equity (ROE), firm size, firm age, and reputation in terms of Knowledge, Attitude, and Practice (KAP) on stock underpricing. The sample selection process employs a saturated sample methodology, resulting in a final observation-worthy sample of 134 companies from an initial pool of 219. We employ multiple regression analysis using the SPSS 27 program to analyze the data. Our findings reveal that while firm size, age, and KAP reputation do not significantly influence stock underpricing, return on equity emerges as a significant determinant affecting the degree of stock underpricing in IPOs. This research contributes to a better understanding of the dynamics at play in the IPO market, providing valuable insights for investors, policymakers, and market participants.

The IPO Underpricing and Market Liquidity after Reform on Chi-Next Board

This essay examines market liquidity and underpricing of initial public offerings (IPOs) in the wake of the Chi- Next board's financial reform in June 2020. The results show that IPO underpricing has grown and market liquidity has improved since the reform. The channel by which the reform affects IPO underpricing and market liquidity can be explained by investor sentiment. The impact of the reform on underpricing and market liquidity can also be explained by other firm-level characteristics, such as leverage and firm life cycle.

The Exploration of the Reasons for Alibaba to List on the New York Stock Exchange (NYSE) in 2014

Alibaba made an important announcement on August 8 in 2022, showing that its requirement about applying to the Hong Kong Stock Exchange for a dual primary listing in Hong Kong and New York had been confirmed and approved by the Hong Kong Stock Exchange. Unquestionably its such a crucial action that was done by Alibaba to expand its market and finance further after its first controversial large-scale Initial Public Offerings (IPO) on the New York Stock Exchange (NYSE) in 2014. The listing process of Alibaba created a sensation in the world that gave rise to the discussion about the reasons and effects of this decision for the company itself and the IPO market in China in recent years. The current study summarized the previous professional articles on these discussions to explore the key reasons for Alibaba to choose to list on the NYSE and the changes in the thoughts of this decision due to the changing times. Although this decision let Alibaba slip into a more competitive global business environment and resulted in the query for its unique governance structure, listing on the NYSE was still more beneficial for Alibaba at that time. The proper unprecedented determination brought greater growth opportunities for Alibaba and provided guidance for future companies. With the development of the times and policy reform in China, the methods of Initial Public Offerings in the companies certainly tend to be more varied and exoteric that need to be innovated and dialectically treated.