Performance Of Initial Public Offerings Research Articles

The Post-IPO Performance in the PRC

The long-run underperformance of IPOs (Initial Public Offerings) is one of the three “New Issues Puzzles” It indicates that if investors buy IPOs and hold for more than three years they will get negative abnormal returns It is necessary to examine the long-run performance of IPOs in China because it benefits how to enhance the efficiency of IPOs market and provides insight of emerging market This paper empirically examines the performance for three years after listing of 76 Shanghai Stock Exchange IPOs form 2002 to 2007, the matched company as the benchmark, the matched company comes from the same industry and similar circulated stock value with listed companies. First it computes the long-run excess returns of the IPOs with types of models. Then it examines whether the underperformance has statistical significance or not. After that, it analyzes the relationship between the variables and long-run performance of IPOs.
 
 Research documents that the IPOs significantly underperformed the matched companies. The cumulative abnormal returns over the three years listing are -0.18446. The buy and hold abnormal returns over three years after listing are-0.01284. At last, using the cross-sectional analysis to analyze the factors that affect the long-run performance of IPOs, the regression result shows that EPS is the basic reason; the intrinsic value, issue characteristics and the investors’ sentiment (overoptimistic) are the main reason for long-run performance of IPOs.
 
 This paper analyzes the reason of this phenomenon, then from the reason puts forward relevant suggestions: firstly, improving the information disclosure; secondly, evaluating the rational investors; thirdly, strengthening market supervision.

Provincial economic performance and underpricing of IPOs: Evidence from political interventions in China

We examine the underpricing of 2,131 Chinese initial public offerings (IPOs) between 2005 and 2017. The results indicate that state-owned enterprises (SOEs) controlled by the local government (local SOEs) offer significantly higher underpricing when they go public than SOEs controlled by the central government and non-SOEs do. This phenomenon is evident for local SOEs from less developed provinces, after controlling for the direct effect of regional economic performance. These results suggest local government officials underprice initial public offerings to make regional companies successfully go public to promote the regional economy.

An Empirical Study on Initial Listing Performance of IPOs in India

In this paper, we analyzed the initial listing performance of initial public offerings (IPOs) by computing the raw return (RR) and the market adjusted excess return (MAER). The study also identified and analyzed the factors that had an influence on the performance of IPOs. We used a sample of 239 IPOs offered during the period from 2016–2018 and examined the performance by employing factors such as offer price, issue size, and method of pricing. The analysis indicated that the offer price had a positive relationship towards the initial listing performance of IPOs ; whereas the issue size, market return, and listing delay showed a negative relationship towards the performance of IPOs. Apart from this, the study also highlighted that underpricing existed in Indian markets during the study period and the level of underpricing was high in fixed price method of issuing IPOs in comparison to book building method of issuing IPOs. It was also found that there was a significant relationship between initial listing performance of IPOs with varying offer price, varying issue size, method of pricing, and different sectors.

The Short and Long-Run Performance of Sharia-Compliant Initial Public Offerings (IPOs) in the Emerging Market: Evidence from the Saudi Arabia Share Market

This study examines the short- and long-run share performance of 40 Sharia-compliant IPO companies listed on the Saudi Arabia Stock Exchange (Tadawul) from 1 st January 2000 to 31 st August 2017. This study employs both market-adjusted initial returns and buy-and-hold abnormal return to measure the share performance of IPOs. First, the analysis shows that Sharia-compliant IPOs are underpricing with abnormal initial returns of 79.23%. Second, the results suggest that investors could earn positive and significant market-adjusted BHAR of 14.67% if they held IPO shares over the eighteen-month period following the listing date when EWI is used as a market benchmark. This study also finds that IPO companies outperformed the VWI although the results are insignificant. The findings on the long-run overperformance contribute to the IPO literature on long-run performance of Sharia-compliant IPOs. The present study would benefit foreign investors and market regulators who are trying to understand the market behaviour in an emerging market.

Stage financing and syndication in the IPO underpricing of venture-backed firms: Venture capital and IPO underpricing

The article investigates the impact of stage financing and syndication practices on the underpricing level of venture-backed firms (VBFs) undertaking their initial public offerings (IPOs). This empirical study uses a unique hand-collected data set concerning more than 260 VBFs that went public on Euronext Paris and Alternext between 1997 and 2013. Our findings suggest a lower level of underpricing for firms backed by syndicated venture capital investment. Additionally, we find that the syndicate size is negatively associated with the level of underpricing. However, there is no evidence that stage financing has a significant impact. Syndication thus appears to be the only relevant mechanism to improve IPO performance (measured by the underpricing level), as it reduces agency costs and information asymmetry between the different stakeholders in an IPO process.

The impact of corporate political connections and executive’s international experience on Chinese firms’ initial public offerings in the USA

PurposeIntegrating social network theory with signaling theory, the purpose of this research is to examine the impact of corporate political connections and executive’s international experience on Chinese firms initial public offerings (IPOs) performance in the USA.Design/methodology/approachThis study used Securities Data Company (SDC) New Issues database to identify all Chinese firms that went public in the USA between 2003 and 2014. Consistent with previous research, IPO firms excluded from the sample include merger or acquisitions, spin-offs and initial stage listed firms. The final sample size is of 142 Chinese foreign IPOs in the US markets.FindingsThis study finds that firms with political connections perform significantly poor than firms without political connections. It shows that US stock markets react to the signals of political connections of Chinese foreign IPOs. In response, the Chinese foreign IPOs can signal international work experience of top executives to US investors. The results show that the executives’ international work experience has significant positive relationships on foreign IPO performance of Chinese firms. Moreover, this study finds that the interaction between corporate political connections and international experience pursues positive effects on the performance of foreign IPOs.Originality/valueThis research intends to extend the knowledge of how corporate political connections and international work experience affects the performance of Chinese firms attempting to access US capital markets. To date, scholars have not investigated the influence of corporate political connections on the amount of capital raised by foreign IPOs.

Revisiting Corporate Political Connections Using Social Networks and Prediction of Post-IPO Performance

ABSTRACT This paper studies political connections from the view of the social networks. We build social networks annually from 2009 to 2017, where firm leaders serve or served in the same government institutions are linked together. Empirically, the social network each year shares a similar structure and shows a small-world effect. Furthermore, we apply four network topologies, namely, degree centrality, betweenness centrality, closeness centrality, and the clustering coefficient, to measure the strength of political connections and utilize these new proxies to predict the post performance of initial public offerings (IPOs). We observe political network centrality has negative effects on the short-term and long-term post-IPO stock returns in that the leaders’ position on the political hierarchy is inversely related to the post-performance of IPO firms. This finding may be attributable to the argument of “grabbing hand” that the capability of an IPO firm on acquiring resources or information on the political network is positively correlated to the extent that government officials using their power to reap the private or political benefits instead of firm value maximization.

Performance of initial public offerings (IPOs): the case of Shariah-compliant companies

Purpose The purpose of this paper is to examine the informational value of Shariah-compliant disclosure in the Malaysian initial public offerings (IPOs) prospectus and whether Shariah-compliant status has an impact on the IPO initial return when adopted as a signalling mechanism. Design/methodology/approach It uses data from 320 IPOs for Shariah-compliant companies listed on the Bursa Malaysia between 2004 and 2013. Findings It finds that the degree of IPO underpricing for Shariah-compliant companies is 19.97 per cent with investors earning significant returns on the first trading day. For the effect of different factors on the degree of IPO, we find that the size and type of IPO offers have a significant impact on the degree of IPO underpricing. Other economic confidence factor models fail to yield economically plausible parameter values. Originality/value The study contributes to the literature in a number of ways. It is the first to evaluate the effect of Shariah-compliance status regulation in Malaysian market, hence it provides an insight into the effectiveness of such regulation. Second, while the existing Shariah-compliant IPO studies in the same market focus on Shariah status at the date of the studies being conducted, this study uses the information around IPO time. The information that investors receive around IPO time may influence investors’ decision and valuation of the IPOs in the aftermarket. Specifically, this study is different from the previous research, as it investigates whether Shariah-compliant companies would change the average degree of IPO underpricing for companies listed on Bursa Malaysia.

Net deferred tax assets and the long-run performance of Initial Public Offerings

On average, firms’ going public severely underperform compared to the market, a phenomenon which is widely known in the literature as IPO underperformance. Though there is no generally accepted theory on the reasons, information asymmetries and the scarcity of information on the issuers is generally considered to contribute to the phenomenon. Accounting data provided by issuers in the offering prospectuses is mostly backward-looking information that is of limited use in forming expectations of future performance. This problem becomes even more pressing, given the increasing fraction of loss firms among IPOs. Net deferred tax assets (NDTA), however, are a balance sheet item that can be expected to include forward-looking information on future earnings. Reporting under IFRS, firms may recognize NDTA only to the extent, that positive income will be available in future periods. We, therefore, expect NDTA to be positively associated with the long-run performance of IPOs. Investigating a sample of firms going public in Germany between 2005 and 2015, we find that NDTA are positively associated with long-run stock price performance. The association is particularly strong among loss firms. Our findings are relevant especially to investors, who regularly have difficulties valuing loss firms. We show that firms which recognized NDTA perform much better in the aftermarket than those that do not have NDTA on the balance sheet. The most important lesson to be learned is that IPO firms that did not recognize NDTA will likely be very poor investments.

Long-Term Equity Performance in Poland – Searching for Answers with the Calendar-Time Portfolio Approach

Abstract Research background: The study examines the performance of companies that are going public with equity issuance (IPO) in Poland. Purpose: Some scholars argue that the buy-and-hold strategy that has been quite widely used suffers from cross correlation and the “bad model” problem. Hence, the calendar-time portfolio approach is used to extend the methodology. Research Methodology: The empirical procedure is two-step. At the beginning, we calculate an average abnormal return for the portfolio of IPOs firms. The portfolio is rebalanced each month. Next, the risk-adjusted performance is measured by regressing returns on a multifactor time-series regression model. We employ the Fama-French (1993) three-factor model and CAPM for the robustness check. Results: In a sample of IPOs listed on the Warsaw Stock Exchange, we find negative and highly significant abnormal returns. Alphas are statistically significant in all of the Fama-French regressions and in most of the cases for CAPM. Novelty: This paper discusses the puzzle of the long-term equity performance of initial public offerings (IPOs) using the calendar-time portfolio approach. Our results point to the economic and statistical significance of long-term IPO underperformance.

How does dependence on key employees matter for initial public offerings of U.S. high-tech firms?

Human capital is a key component of the resource base of the firm, particularly in high-tech entrepreneurial firms. In the initial public offering (IPO) context, the IPO firm sometimes identifies individual key employees because the IPO firm is dependent on the services of those employees. However, research is limited on determining the impact of such employee dependence on firm IPO performance. Using a sample of U.S. high-tech firms, we show that the IPO firm's performance is lower when the IPO prospectus discloses such dependence. Among firms with such disclosures, long-tenured executives increase IPO performance. In addition, the effects of long-tenured executives are stronger when multiple key employees are identified in the IPO firm.

Does the threshold of information disclosure improve corporate governance? Evidence from China

Since the Internet is currently being utilized in initial public offerings (IPOs), there has been a fundamental change in how IPOs can be distributed. Through the Internet, firms issue shares to a wider range of smaller investors. From the perspective of online marketing, we focus on the influences of information disclosure on IPO performance and corporate governance. We analyze if a higher degree of IPO firm performance in the IPO aftermarket is related to corporate governance. We build a corporate governance index CG for IPO firms, composed of equity structure, board characteristics, management style and disclosure quality. Through empirical evidence, we confirm that the threshold of information disclosure has positively effect on IPO firms performance. In particular, IPO firms with higher CG experience significant increases in EPS and ROA in the post-marketing. The impact of corporate governance on IPO firm performance is significant in the economic boom and non-significant in the economic recession.

How Did the Elimination of the Window Guidance Policy Affect IPO Performance in China? A Stochastic Dominance Analysis

ABSTRACT This study uses data on all initial public offerings (IPO) listed on the three boards in China’s stock markets to investigate overpricing in the Chinese IPO market from 2009 to 2013, which was the only period during which the “window guidance” policy was suspended in China. We use stochastic dominance tests to compare IPO performance to that of corresponding market indexes and to test whether the policy change addresses earlier problems of underpricing. The results indicate that the Chinese IPO market is extremely overpriced, and on average IPOs perform worse than the secondary market, which implies that investors who invest in newly listed IPOs have a higher likelihood of losing money than they would by investing in the secondary market.

Are IPOs underpriced or overpriced? Evidence from an emerging market

Underpricing of Initial Public Offerings (IPOs) is one of the most widely studied anomalies in the literature on financial economics. This paper examines the short-run IPO performance in an emerging market by using the data of 148 IPOs listed on the Colombo Stock Exchange (CSE) from 1991 to 2017. We found that IPOs on average were underpriced by 47% and that 32 IPOs were overpriced by approximately 17%–18%. The stepwise multiple regression results showed that offer risk, investor sentiment, firm size, market volatility prior to the IPOs, the time lag between IPO issue date and CSE listing date, and hot-issue periods have a significant relationship with IPO returns. The outcomes are hence consistent with the prediction of ex-ante uncertainty, windows of opportunity and the investor sentiment hypotheses. Overall, the results indicate that in Sri Lanka, underpricing accounts for a greater percentage of the IPOs than overpricing.

Family involvement signals in initial public offerings

Utilizing signaling theory, this study examines the relationship between signals of family involvement (i.e., family ownership and management) and the performance of firms undergoing an initial public offering (IPO). Specifically, we argue that firms using family-oriented language in their IPO prospectus results in greater IPO underpricing due to the misalignment between IPO investors’ general perceptions of family business and their expectations for the IPO. Additionally, we argue that this misalignment is more pronounced for firms in high-tech industries, which are commonly more risk- and growth-oriented. Using a sample of 155 U.S.-based firms that made their IPO between 2009 and 2012, we find support for our hypotheses. Overall, our findings demonstrate that more observable signals of family involvement in an IPO may negatively influence IPO performance, particularly in high-tech industries.

Monte Carlo Simulation for Long Term Performance of Initial Public Offerings in Malaysia Stock Exchange

Monte Carlo Simulation for Long Term Performance of Initial Public Offerings in Malaysia Stock Exchange

Evaluation of Long Term Performance for Initial Public Offerings (IPO) in Malaysia: A Fama-French Method

The objective of this study is to evaluate performance of initial public offerings for 16 sharia compliant companies listed on the Malaysia Stock Exchange. Data of stock price are collected from Thomson Reuters Datastream for 36 months starting from January 2016 until December 2018. The method implemented is using Fama-French approach that evaluates expected return with three factors namely Market Risk Premium (MRP), Small Minus Big (SMB) and High Minus Low (HML). Result shows the abnormal return for 36 months is -3.399 which indicates negative value. The negative value of y-intercept gives interpretation that market (FTSE Bursa Malaysia KLCI) performed better than portfolio. The findings of this study will help investors to understand the financial dynamic behavior in Malaysia Stock Exchange. In addition, it will help investors to select appropriate financial assets for investment portfolio in gaining better return.

Is Window-Dressing around Going Public Beneficial? Evidence from Poland

The informativeness of financial reports has been of a great importance to both investors and academics. Earnings are crucial for evaluating future prospects and determining company value, especially around milestone events such as initial public offerings (IPO). If investors are misled by manipulated earnings, they could pay too high a price and suffer losses in the long-term when prices adjust to real value. We provide new evidence on the relationship between earnings management and the long-term performance of IPOs as we test the issue with a methodology that has not been applied so far for issues in Poland. We use a set of proxies of earnings management and test the long-term IPO performance under several factor models (CAPM, and three extensions of the Fama-French model). Aggressive IPOs perform very poorly later and earn severe negative stock returns up to three years after going public. The difference in returns in accrual quantiles is statistically significant in almost half of methodology settings. The results seem to suggest that investors might not be able to discount pre-IPO abnormal accruals and could be overoptimistic. Once the true earnings performance is revealed over time, the market makes downward price corrections.

Evaluation of Long Term Performance for Initial Public Offerings using Market Adjusted Cumulative Abnormal Returns (MACAR): A Case Study of Islamic Finance in Malaysia

The main objective of this paper is to evaluate the long term performance of initial public offerings for sharia compliant companies listed on the Malaysia Stock Exchange. The number of selected companies is 17 that issued initial public offerings (IPO) in the year of 2014 and 2015. Data for analysis in this study are collected from Thomson Reuters Datastream. The daily stock price is collected and then averaged to attained monthly share price. Next, this study using market adjusted cumulative abnormal returns (MACAR) to evaluate the performance of initial public offerings. In the same time, this study implemented the Shapiro-Wilk normality test to check the normality of data distribution. The result shows the MACAR value is -46.0024 % for 17 sharia-compliant companies. The negative value indicates the companies performed less than the benchmarked market namely Kuala Lumpur Stock Exchange (KLSE). Therefore, the findings show the market performed better than companies that issued IPO. The importance of this finding is it will help investors to make a better decision in developing their investment portfolio in gaining better profit and reducing the loss. In addition, the findings also will help the financial analyst to understand the dynamic behavior of the financial environment in Malaysia Stock Exchange.

Long Run Performance of Initial Public Offerings (IPOs) in Pakistan

This study is aimed to analyze long run performance of initial public offerings (IPOs) in Pakistan by taking the sample of 15 firms for the period of 2006 to 2011. We took secondary data for our research from KSE, SBP, and Brecorder. Stock returns of IPO firms are considered as dependent variables and firm size, firm age, profitability and leverage ratios are considered as explanatory variables for the long run performance of IPOs. Previous literature on IPOs indicates that IPOs underperform in the long run. Firm’s size and profitability have some significant positive correlation with the IPOs long run performance. All the findings of this research paper depend upon the background of the different industry sectors, the perspective of the study and sample distribution. And the Leverage ratio and Age of the firms are negatively correlated with the long run performance of the IPOs.