Initial Public Offerings Research Articles

IPO Pricing in Germany and Switzerland in the New Millennium: Tests on Underpricing and Long-Term Performance

We provide an updated analysis of initial public offerings (IPOs) by Swiss and German companies after the turn of the millennium up to 2020. We compare the characteristics of initial pricing to those observed in prior studies, test conventional hypotheses about underpricing cross-sectionally, and analyze the long-run performance of IPO firms. Our sample included 72 IPOs in Switzerland and 307 IPOs in Germany. We found an average (median) underpricing of 13.27% (7.19%) for Swiss IPOs and an average (median) of 21.50% (3.7%) for German IPOs; the averages dropped to 6.45% and 5.82%, respectively, after excluding the hot-issue market in 2000. Among the cross-sectional explanations, interesting effects can be observed with respect to the bookbuilding width and transparency standard of the listed market segment, as well as the reputation of the underwriter and the value of the greenshoe option. We documented strong post-issue underperformance for holding periods up to 120 months, which were, however, only present in the Swiss sample for median, not mean, returns.

Macroeconomic variables and initial public offerings in Sri Lanka: a principal component analysis approach

PurposeThis study aims to comprehensively examine the relationship between initial public offering (IPO) activities and macroeconomic factors in Sri Lanka.Design/methodology/approachThis study uses principal component analysis (PCA) and autoregressive distributed lag (ARDL) techniques to examine the relationship between IPO activities and macroeconomic factors. Ten macroeconomic variables are transformed into principal components (factors) using PCA. Then, ARDL is applied to investigate the long- and short-term relationships between IPO activities and the transformed macroeconomic factors.FindingsThe empirical investigation identifies three principal factors from the ten macroeconomic variables, of which two factors have a significant long-run association with IPO activities: “return on investment (RTOI)” and “economic and market development (ECMD).” In the short run, “trade openness and banking sector development (TOBD)” and RTOI are significantly associated with IPO activities.Research limitations/implicationsThe study was based on 30 years of observations, which passed all diagnostic tests but may be insufficient for generalizing the findings. Future studies could use high-frequency data (monthly or quarterly) to increase the number of observations and repeat the method and analysis. Also, while the symmetrical ARDL method was used in this study, an asymmetrical ARDL method may provide more insightful results and interpretations.Practical implicationsThe study highlights the importance of considering both long- and short-term associations when analyzing the impact of macroeconomic variables on IPO activities.Originality/valueThis study is the first to comprehensively examine the relationship between IPO activities and macroeconomic variables using PCA and the ARDL technique. The study provides insight into the macroeconomic factors that influence IPO activities in Sri Lanka and highlights the importance of considering long- and short-term associations.

Unlocking IPO success in Pakistan: the power of institutional quality, sponsor ownership and smart pricing

PurposeThis study investigates the variables that impact initial public offerings (IPO) initial returns witnessed in Pakistan from 1996 to 2019 using pre-listing information variables, namely country-level institutional quality, sponsor ownership and pricing mechanism. IPO oversubscription is included as a moderating variable.Design/methodology/approachThis research is motivated by the premise that the Pakistani IPO market is characterised by a broad range of institutional and regulatory frameworks. Multiple regression studies, i.e. ordinary least square (OLS) and quantile least square (QLS), were performed on 102 IPOs issued on the Pakistan stock market.FindingsThe present study findings suggest that the quality of public service, the independence of civil service from political influences and the legitimacy of government increase investors’ confidence in the prospects of companies, hence increasing the demand for IPO and initial returns. In addition, good regulatory quality enhances market transparency and lowers uncertainty, hence signalling high-quality IPOs and leading in substantial initial returns. The negative effect of the lock-up ratio on the initial return of an IPO is consistent with the risk-return trade-off theory, which asserts that the lock-up ratio indicates the quality of the IPO.Practical implicationsThe results provide market regulators, policymakers, investors and underwriters with useful data for assuring proper subscriptions of issued shares, as these variables are crucial for company transparency and market efficiency. The findings will also help investors make better IPO subscription decisions.Originality/valueThe present study explains the important influencing factors of IPO initial return in the Pakistani market.

Linking Non-Financial Performance Determinants with IPO Underpricing: Evidence from Indonesia

Study Background/Rationale: This study aims to investigate the determinants that may influence the underpricing in Initial Public Offerings (IPO), a phenomenon found in stock exchange markets globally. Underpricing occurs when the intrinsic value is higher than the offer price set by the issuing firm. As a result, the share’s price skyrockets upon its market debut, offering an instant profit to investors, but potential damage to the company itself. Method: The focus of this study is the Indonesian stock market, which is seen as one of the leading growth economies among emerging markets and other developing economies, with accelerated GDP and having topped the list of Southeast Asian (ASEAN) countries regarding the number of IPOs. This research utilises multiple linear regression models and samples of firms that engaged in IPO in the Indonesia Stock Exchange (IDX) between 2018 and 2022. Findings: Using prospectus’ non-financial performance determinants, this study finds that underwriter reputation, public ownership, and firm size have a positive influence on underpricing; additionally, offering size and firm age have a negative and statistically significant influence on underpricing. Furthermore, this study adds to the existing research by emphasising how various determinants are linked to IPO underpricing in Indonesia. In addition, this study demonstrates that prospectuses provide relevant information to minimise information asymmetry and ex-ante uncertainty between firms and shareholders. Conclusion: Considering the present shortage of studies on the determinants of IPOs underpricing as a starting point, this empirical research can be valuable since it could enhance the existing research by providing latest data for comparisons across nations.

THE INFLUENCE OF CREDIT RISK, CAPITAL ADEQUACY AND OPERATIONAL EFFICIENCY ON THE PROFITABILITY OF BANKS LISTED ON THE INDONESIAN STOCK EXCHANGE

The purpose of this research is to determine and analyse the effect of credit risk, capital adequacy level and operational efficiency on the profitability of banking companies listed on the Indonesia Stock Exchange in 2019-2021. This study is a type of quantitative research that uses a descriptive design. In this study, researchers used secondary data obtained from the financial statements of banking companies. Researchers obtained a population of 46 banking companies listed on the Indonesia Stock Exchange in 2019-2021. The sampling technique uses initial public offering (IPO) sampling, which is a purposive method. Based on the sample characteristics, the authors found 31 banking companies with 93 financial data respondents. The data analysis technique is multiple linear regression using SPSS version 25. The results of this study indicate that credit risk has a negative and significant effect on profitability, capital adequacy has a positive and significant effect on profitability, operational efficiency has a negative and significant effect on profitability. Credit risk, capital adequacy and operational efficiency together have a significant effect on profitability. The result of the coefficient of determination (R2) of 0.627 shows that 62.7% of the variation in the adjusted R-squared is explained by variations in the factors Credit Risk (X1), Capital Adequacy (X2), Operational Efficiency (X3). While the remaining 37.3% is influenced by other unobserved factors affecting the profitability variable (Y). Therefore, further research using other variables is needed.

Busy Independent Directors and IPO Company Earnings Management: Evidence from China

This study investigates the effect of busy independent directors on earnings management in Chinese initial public offering (IPO) companies from 2010 to 2020. Using various measures of busy independent directors, the results indicate that directors in IPO companies play a significant role in supervision and governance, thereby significantly mitigating earnings management. Busy independent directors, serving on multiple boards, may face time constraints, but, intriguingly, companies with such directors show a lower inclination for earnings manipulation. This suggests that despite potential time pressures, the independent oversight provided by these directors serves as a deterrent to financial reporting manipulation in the context of Chinese IPOs, underscoring the importance of robust corporate governance structures for transparency and reliability. Additionally, this study identifies specific conditions that amplify the constraining effect and finds that the effect of busy independent directors on earnings management in IPO companies is more significant in companies with high compensation for independent directors, independent directors serving off-site, and companies that receive higher media attention. Mechanism testing indicated that busy independent directors mitigate IPO firms’ earnings management by engaging reputable audit firms and enhancing the effectiveness of internal controls. This nuanced analysis offers valuable insights into how busy, independent directors actively contribute to alleviating the risks associated with earnings management during the IPO process. This study enhances our understanding of the governance benefits of active independent directors in multiple roles and offers novel perspectives on how stakeholders can influence and constrain earnings management in IPO companies.

Decoding the impact of political uncertainty on IPO underpricing in China

PurposePolitical factors play a crucial role in China's initial public offering (IPO) market due to its distinctive institutional context (i.e. “economic decentralization” and “political centralization”). Given the significant level of IPO underpricing in China, we examine the impact of local political uncertainty (measured by prefecture-level city official turnover rate) on IPO underpricing.Design/methodology/approachUsing 2,259 IPOs of A-share listed companies from 2001 to 2019, we employ a structural equation model (SEM) to examine the channel (voluntarily lower the issuance price vs aftermarket trading) through which political uncertainty affects IPO underpricing. We check the robustness of the results using bootstrap tests, adopting alternative proxies for political uncertainty and IPO underpricing and employing subsample analysis.FindingsLocal official turnover-induced political uncertainty increases IPO underpricing by IPO firms voluntarily reducing the issuance price rather than by affecting investor sentiment in aftermarket trading. These relations are stronger in firms with pre-IPO political connections. The effect of political uncertainty on IPO underpricing is also contingent upon the industry and the growth phase of an IPO firm, more pronounced in politically sensitive industries and firms listed on the growth enterprise market board.Originality/valueLocal government officials in China usually have a short tenure and Chinese firms witness significantly severe IPO underpricing. By introducing the SEM model in studying China IPO underpricing, this study identifies the channel through which local government official turnover to political uncertainty on IPO underpricing.

A Rise in the No. of Initial Public Offer’s in the Indian Public Markets

The research paper is an analysis of the Indian stock market and analyses an increase in Initial Public Offerings (IPOs) made between 2012 to 2024 The growth is also attributed to factors such as positive economic data, growing investor interest, and regulatory softening. No doubt that there has been some change, but the trend has overall remained stronger riding high on bullish market sentiment as well as confidence from investors. The study stresses that this growth is only possible if the continued regulatory oversight and investor protection measures in place remain following the growth.

An Introspection into IPO Pricing and Post-listing Performance of Indian Fintech Companies

The study examines the extent of initial public offering (IPO) underpricing of the Fintech companies and compares the same with the non-Fintech companies. The study also conducts post-listing performance of Fintech companies using listing gains, profitability margin, and valuation multiple over 3 years. The overall study, which spans from 2007 to 2022, indicates that the extent of IPO underpricing of Fintech companies is marginally higher than that of the non-Fintech companies. The results reveal that investors suffered a drip in the listing gains during the post-listing period. Further, during the post-listing phase, the Fintech companies have been able to post a continuous profit and also could sustain with a steady valuation multiple. The findings of the study postulate that the Fintech companies need to focus on implementing the right strategies to reduce the uncertainty and discontent among the investing community. Thus, the companies need to look forward to building up investor confidence in the upcoming days with improved performance. The significant implication of the study brings out that the policymakers need to contemplate framing norms for eradicating discontent and instilling confidence in the investors toward the Fintech companies over a longer time horizon of the primary market investment.

Investor demand for stocks in Initial Public Offerings and their price behaviour after debut. Evidence from Poland

This article investigates the relationship between investor demand during an IPO and the long-term behaviour of share prices following a company’s stock market debut. Specifically, the study examines the impact of the demand observed during the public offering and the size of the offering on abnormal return rates for a sample of 116 IPOs on the Warsaw Stock Exchange between 2012 and mid-2022. The primary research hypothesis tests whether the medians of abnormal return rates, influenced by these factors, are statistically significant over several time intervals ranging from 3 to 12 months after the debut. The findings confirm that certain information from the completed public offering, particularly the relatively low number of new shares offered, plays a significant role in predicting abnormal changes in share prices during these periods. This research offers valuable insights for investors, emphasising the key factors within the IPO process that can influence the trajectory of share prices following a company’s market debut.

The Impact of Financial Disclosure on Stock Performance of Initial Public Offerings in the Indonesian Capital Market

This research aims to explore whether the proceeds, age, revenue, and underwriter rating of IPO companies affect disclosure; whether disclosure mediates the relationship between the four exogenous variables and underpricing; and whether underpricing mediates the relationship between disclosure and returns. This research uses Partial Least Squares Structural Equation Modelling (PLS-SEM) as the data processing method. Since this research examines interactions between variables, PLS-SEM is an effective data processing method. This research identifies four key exogenous variables: funds raised from the IPO, the age of the IPO company, the income of the companies prior to the IPO, and the ranking of underwriting companies. The research finds that the R-squared of the disclosure variable is 0.0037, or 3.7%, while the Q-squared of the disclosure variable is 0.0039. Meanwhile, the R-squared of the underpricing variable is 0.435, and the Q-squared of the underpricing variable is 0.456. The research also finds that higher proceeds, age, revenue, and underwriter ranking of IPO companies will reduce disclosure. Conversely, higher proceeds and age of the IPO companies will reduce underpricing, while higher revenue and underwriter ranking of the IPO company will increase underpricing. Finally, the research finds that higher disclosure will increase underpricing. Статтю розміщено в рамках грантової програми ГО «НАУКОВО-ОСВІТНІЙ ІННОВА-ЦІЙНИЙ ЦЕНТР СУСПІЛЬНИХ ТРАНСФОРМАЦІЙ» за підсумками Конкурсу індивідуальнихгрантів «Ініціатива підтримки науковців»

Assessing the Performance of Initial Public Offerings (IPOs) in Indian Stock Markets: A Longitudinal Study from 2014-2023

This research investigates the performance of Initial Public Offerings (IPOs) in the Indian stock market over a decade (2014-2023). The study aims to assess both short-term and long-term IPO returns and the factors influencing their performance. Using a quantitative, longitudinal approach, data was collected from the National Stock Exchange (NSE) of India, covering 500 IPOs. The analysis examines short-term listing day returns and long-term performance up to five years post-IPO, focusing on variables like firm size, market sentiment, and sector-specific dynamics. The findings reveal substantial variations in IPO performance, with average listing day returns ranging from 18.98% to 26.35%, particularly peaking during market volatility in 2020. However, long-term returns exhibit a decline, with many IPOs underperforming five years after listing. Regression analysis shows that firm size and market sentiment significantly affect IPO performance, with larger firms and favorable market conditions driving better outcomes. The technology and pharmaceutical sectors outperformed, while real estate IPOs lagged. The study highlights the importance of due diligence for investors and the need for continued regulatory reforms to improve market transparency and efficiency. This research fills a gap in the literature by providing a comprehensive, decade-long perspective on IPO performance in India.

Initial Public Offering (IPO) and Value Aggregation: a Systematic Literature Review

Objective: The objective of this study is to conduct a systematic literature review on Initial Public Offerings (IPO) and value aggregation, identifying the key articles and authors who investigate the topic. Theoretical Framework: The theoretical framework is based on life cycle, market timing, and pecking order theories, highlighting the benefits and risks of IPOs for companies, such as raising capital and increasing market value. Method: The method used was a systematic review, based on the Web of Science, focusing on articles about IPOs and value creation. Stages such as research operationalization, application of filters, and bibliometric analysis were followed. Results and Discussions: The results indicate a significant increase in the number of publications after 2007, with emphasis on the seminal work of Loughran and Ritter. The discussions reveal that most research focuses on pricing and governance aspects, with few investigations on financial value aggregation. Research Implications: The research implications suggest the need for future studies focusing on the financial impact of IPOs, especially in emerging markets. Originality/Value: The originality and value of this work lie in the systematization of a vast literature on IPOs and the identification of gaps for future research

The Role and Impact of Investment Banks in the IPO Process of High-Tech Enterprises

As China's comprehensive strength continues to grow, new opportunities arise for the development of high-tech industries. An increasing number of high-tech enterprises are entering the capital market through Initial Public Offerings (IPOs) to raise funds, expand their scale, and enhance brand influence. Investment banks play a crucial role in this process. As professional financial institutions, investment banks provide indispensable services, including professional consultation, due diligence, and risk management. Additionally, investment banks can leverage resources from other industries to assist in the development of high-tech enterprises, guide them in standardized management, enhance brand value, and help these companies achieve stable growth in a competitive environment, ultimately bringing greater economic and social benefits.

Control risk premium: Dual‐class shares, family ownership, and minority investor returns

AbstractDespite exhibiting significant valuation discounts, dual‐class shares surged from 1% of initial public offerings in 1980 to nearly half in recent years. This study investigates the potential harm of such structures by examining the identity and returns of minority shareholders. We find that sophisticated investors predominantly hold low‐voting shares. Furthermore, outside shareholders earn a positive risk premium rather than suffering low returns, consistent with the hypothesis that market prices compensate for the risk associated with dual‐class structures. Our analysis reveals that such structures are confounded with family control, which is present in 89% of dual‐class firms in the Russell 3000. Interestingly, single‐class firms with family shareholders also enjoy positive abnormal returns, implying minority shareholders care more about the presence of a controlling shareholder than a specific voting structure. This research contributes to the ongoing debate on restricting dual‐class structures by highlighting the complex relationship between ownership, control, and shareholder returns.

The Influence Of Earning Per Share (Eps), Dept To Equity Ratio (DER), And Company Age On Underpricing In Idx

This study analyzes whether the variables earnings per share (EPS), debt to equity ratio (DER), and Age Copies influence the underpricing of the Initial Public Offering (IPO). The theory related to underpricing is the signaling theory. The method used in this study is regression analysis. The results from this study show that only three variables, EPS, DER, and Age Companies, have a significant effect on underpricing. Because of the higher profitability, investors will be interested in buying or getting a substantial return on their participation. Simultaneously, no variables affected underpricing.

What use of proceeds do family IPOs signal? The influence of family generational stage and family CEO

PurposeThis study aims to investigate the relationship between the family generational stage and the intended use of the Initial Public Offering (IPO) proceeds disclosed in the prospectus. With the aim to explore family business (FB) heterogeneity, it also explores the moderating role of the family CEO.Design/methodology/approachWe draw on signalling theory and hand-collected data on Italian family IPOs that occurred in the period 2000–2020, disentangling the intended use of IPO proceeds as distinguished into three categories. We employ logit regression to test our hypotheses.FindingsAccording to our theoretical predictions, we find that the family generational stage positively affects the disclosure of the investment reason as the intended use of IPO proceeds, while it negatively influences the use for recapitalization and general corporate purposes. The first relationship is moderated by the presence of a family CEO. Our results remain robust with different FBs definitions and a different empirical method.Originality/valueTo the best of the authors’ knowledge, this paper is the first to address the topic of the intended use of IPO proceeds in FBs. In doing so, it opens avenues for future research by enriching an underdeveloped, albeit growing, area of research, that of preparing for the market scrutiny in family IPOs.

A study of the influence of family involvement on the IPO performance of Korean start-ups

ABSTRACT This study examines what types of abilities of the top management team influence the market value at initial public offering (IPO) and especially focuses on how family involvement influences the effect of top management on the market value at IPO. As a result, first, the more top managers with the output function background or the relevant industry experience the top management team has, the higher the market value at IPO is. Second, the more family members participate on the board of directors, the stronger the impact of the top management team’s output function background or relevant industry experience on the market value at IPO.

The impact of risk factor disclosure on the initial return of IPO companies amidst a pandemic

The capital market has increasingly become a pivotal avenue for enterprises seeking additional capital for expansion or operational enhancements. In raising funds through an Initial Public Offering (IPO), the company must publish its risk disclosure in the prospectus. Therefore, this study aims to investigate the impact of risk disclosure on the initial return of Indonesian companies undergoing IPOs during the pandemic. Using data from 136 out of 164 companies that went public between 2020 and 2022, sourced from the Indonesian Stock Exchange and company websites, the study employs the ordinary least squares method to estimate the impact of risk disclosures on initial returns during the pandemic. The findings reveal that external and overall risk disclosures significantly influence IPO initial returns. Specifically, Indonesian investors were particularly attentive to external and overall risks when evaluating IPOs during the pandemic. This heightened concern suggests that comprehensive risk disclosure can affect investor behavior and financial outcomes for companies going public in uncertain times, highlighting the importance of transparency in risk communication to support investor decision-making and market stability.

Does Media Tone Influence Pre‐IPO Earnings Management? Evidence from IPO Approval Regulation in China

Unlike the reputation view on the governance role of the media, we propose that media coverage influences pre‐IPO earnings management through the regulation mechanism. Using the Chinese initial public offering (IPO) approval regulation setting, we find that negative pre‐IPO media tone is associated with lower abnormal accruals but with higher real transactions manipulation and total earnings management in IPO prospectuses. We also find that the media's effect is more pronounced when IPO firms face stronger regulatory scrutiny such as when they have no approval committee connections, no political connections, or no state ownership. Further, we find that the effect of media tone is stronger when the media outlet has high circulation or high credibility. Our findings suggest that, in a highly regulated market, the media plays a limited governance role because, although it has the effect of restraining accruals management, this effect is substituted with more real transactions manipulation to reduce the risk of being punished by regulators.