Initial Returns Research Articles

A Welfare Analysis of Tax Audits Across the Income Distribution

Abstract We estimate the returns to IRS audits of taxpayers across the income distribution. We find an additional ${\$}$1 spent auditing taxpayers above the 90th income percentile yields more than ${\$}$12 in revenue, while audits of below-median income taxpayers yield ${\$}$5. We construct our estimates by drawing from comprehensive internal accounting information and audit-level enforcement logs. We begin by estimating the average initial return to all audits of US taxpayers filing in tax years 2010–2014. On average, ${\$}$1 in audit spending initially raises ${\$}$2.17 in revenue. Audits of high-income taxpayers are more costly, but the additional revenue raised more than offsets the costs. Audits of the 99–99.9th percentile have a 3.2:1 initial return; audits of the top 0.1% return 6.3:1. We then exploit the 40% audit reduction between tax years 2010 and 2014 to examine the returns to marginal audits. We find they exceed the returns to average audits. Revenues remain relatively unchanged but marginal costs fall below average costs due to economies of scale. Next, we use randomly selected audits to examine the impact of an initial audit on future revenue. This individual deterrence effect produces at least three times more revenue than the initial audit. Deterrence effects are relatively consistent across the income distribution. This results in the 12:1 return above the 90th percentile. We conclude by estimating the welfare consequences of audits using the MVPF framework and comparing audits to other revenue-raising policies. We find that audits raise revenue at lower welfare cost.

From Sound to Movement: Mapping the Neural Mechanisms of Auditory–Motor Entrainment and Synchronization

Background: Humans exhibit a remarkable ability to synchronize their actions with external auditory stimuli through a process called auditory–motor or rhythmic entrainment. Positive effects of rhythmic entrainment have been demonstrated in adults with neurological movement disorders, yet the neural substrates supporting the transformation of auditory input into timed rhythmic motor outputs are not fully understood. We aimed to systematically map and synthesize the research on the neural correlates of auditory–motor entrainment and synchronization. Methods: Following the PRISMA-ScR guidelines for scoping reviews, a systematic search was conducted across four databases (MEDLINE, Embase, PsycInfo, and Scopus) for articles published between 2013 and 2023. Results: From an initial return of 1430 records, 22 studies met the inclusion criteria and were synthesized based on the neuroimaging modality. There is converging evidence that auditory–motor synchronization engages bilateral cortical and subcortical networks, including the supplementary motor area, premotor cortex, ventrolateral prefrontal cortex, basal ganglia, and cerebellum. Specifically, the supplementary motor area and the basal ganglia are essential for beat-based timing and internally guided rhythmic movements, while the cerebellum plays an important role in tracking and processing complex rhythmic patterns and synchronizing to the external beat. Self-paced tapping is associated with additional activations in the prefrontal cortex and the basal ganglia, suggesting that tapping in the absence of auditory cues requires more neural resources. Lastly, existing studies indicate that movement rate and the type of music further modulate the EEG power in the alpha and beta frequency bands. Conclusions: These findings are discussed in the context of clinical implications and rhythm-based therapies.

A new approach to assessing a company’s financial indicators: taking into account business and financial risks

There are two main methods for estimating the value of assets. The first method is the well-known CAPM (Capital Asset Pricing Model), which uses the risk-free rate as the initial return and takes into account only the business risk associated with investing in a specific asset, and not in the market as a whole. The second method is associated with the use of one of two main theories of capital structure (Brusov–Filatova–Orekhova (BFO) theory and Modigliani–Miller (MM) theory), which take into account only the financial risk associated with the use of debt financing and allow the calculation of all financial indicators of a company of arbitrary age (BFO theory) or perpetuity one (MM theory). The article develops a new approach related to the use of the company’s current profitability, taken from the annual report, as a seed profitability of an asset (company). As part of the new approach, a methodology has been developed that makes it possible to calculate all the main financial indicators of a company within the framework of capital structure theories, taking into account both financial and business risks. Transition from CAPM to a new methodology significantly improves the accuracy of the estimate. The new approach, unlike CAPM, has forecasting capabilities.

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.

The Influence of Financial Performance and Underwriter Reputation on Annual Return

This study examines the effect of profitability, liquidity, financial leverage, and the underwriter's reputation on the underpricing of Initial Public Offering (IPO) shares. Samples were taken from companies that conducted an IPO on the Indonesia Stock Exchange from 2018 to 2021 using a purposive sampling method, resulting in sample data from 62 companies. Data on underpricing were measured using initial return, profitability was measured by return on equity (ROE), liquidity was measured using the current ratio (CR), financial leverage was measured using the debt-to-equity ratio (DER), and underwriter's reputation was measured using the top 10 in terms of the 20 most active brokerage houses monthly in total trading frequency during the study period. The results of this study indicate that profitability (ROE) and underwriter reputation (RU) have a negative and significant effect on underpricing, while liquidity (CR) and financial leverage (DER) have a negative and insignificant effect on underpricing.

Where does the future lie? Initial aspirations for return among newly arrived Ukrainian refugees in Norway

ABSTRACT The lives of millions of people, who fled from Ukraine after Russia's full-scale invasion in February 2022, were turned upside down from one day to the next. When faced with such an abrupt escape, what initial thoughts do refugees have about whether to remain in their new host country or to return when the war ends? In this study, we focus on refugees' initial return aspirations soon after their escape. We conduct an in-depth analysis of how individual background factors and circumstances affect refugees' aspirations to remain or return. Based on unique data collected during the months immediately following Russia's invasion of Ukraine, we use survey data on Ukrainian refugees in Norway to examine their return aspirations and what individual factors that affect these aspirations and qualitative interviews with Ukrainian refugees to explore the rationales for their initial aspirations. We find that only one-fourth plan to return to Ukraine as soon as the war ends. Our analysis of how individual factors affect initial return aspirations both support and contradict previous research. Thus, we discuss how our apparently contradictory findings provide theoretical nuances of how host country and refugee group characteristics interplay with individual predictors of initial return aspirations.

Google search and cross-section of cryptocurrency returns and trading activities

This paper examines the effect of investor attention on the cross-section of cryptocurrency returns and trading activities. We find that cryptocurrencies associated with higher abnormal Google search volume subsequently exhibit higher returns, higher volatility, and higher trading volume. The results are robust to alternative sample periods and alternative search keywords, providing concrete support to the attention-induced price pressure hypothesis and consistent with prior studies on the equity market. The effect is more pronounced among larger cryptocurrencies. Only a partial reversal after the initial return increase is observed, implying that investor attention permanently impacts cryptocurrency prices.

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.

The Effect of PER, DER, Firm’s Age, Firm’s Size, Gross Proceeds and Public Float on Long-Run Stock Performance after IPO with Initial Return as an Intervening Variable

The purpose of this study is to analyze the effect of PER, DER, Firm’s Age, Firm’s Size, Gross Proceeds and Public Float with Initial Return as an intervening variable on the long-run performance of stocks after the IPO. The population in this study amounted to 372 stock issuers. The sample data used in this study is secondary data in the IPO period from 2018 to 2022 consisting of 155 stock issuers taken using the purposive method. The regression analysis used in this study is multiple linear regression to reveal the direct effect while to reveal the indirect effect through the intervening variable using the Preacher-Hayes Bootstrap Test. From the results of the tests carried out, it was found that DER and Gross Proceeds had a direct effect on the long-run performance of stocks after the IPO while other dependent variables had no effect. In addition, from the results of the Preacher-Hayes Bootstrap test that had been carried out, no indirect effect was found on the independent variable through the intervening variable on the dependent variable.

Underwriter incentives and IPO pricing

We examine the impact of incentive fees paid to IPO underwriters at issuers' discretion on IPO pricing and short-term performance. We expect that better-incentivized underwriters produce more information required for IPO pricing reducing underwriters' reliance on investors' information production which requires compensation through IPO underpricing. Using a novel dataset, we find that incentive compensation mitigates the partial-adjustment phenomenon. IPOs with stronger incentives have more informative price ranges, higher price revisions, longer road shows and lower initial returns largely due to interaction effects between underwriters' incentives and their information-production capabilities. Using a battery of tests and addressing endogeneity, our results remain robust.

Sentiment and information: How ‘over-optimistic’ investors influence differences of opinion and IPO pricing?

Miller (1977) predicts that under short-sale constraints, when emotional investors gain stronger bargaining power relative to rational investors, disagreement among investors widens, leading to overvaluation of IPOs. With a difference-in-differences model, we find that the 2021 reform of China's inquiry system expanded investor disagreement due to the introduction of overly optimistic investors, resulting in overvaluation of IPOs and poor initial returns. Influenced by overly optimistic investors, rational investors experience a partial increase in information levels, generating a masking effect in the emotional impact chain. Our study supports Miller's hypothesis, contributing to understanding the roles of ‘emotion’ and ‘information’ in shaping disagreement and enhancing IPO pricing efficiency.

Economic Effects of Introduction of Modern Technologies in Beekeeping

The article discusses the economic impact of integrating modern technologies in beekeeping, such as Artificial Intelligence (AI), Machine Learning (ML) and the Internet of Things (IoT). The balance between initial investment and Return on Investment (ROI), operational scalability, market competitiveness, and government policy influences is studied. The importance of Comprehensive Economic Analysis in optimizing benefits and overcoming the challenges beekeeping faces is emphasized. Introducing new technologies in the field leads to the scaling effect, which allows beekeepers to manage more processes and operations faster and with fewer costs and to enter wider markets, leading to increased revenue and high profitability. In addition, challenges related to the scale of activity and market conditions are noted, mainly faced by small apiaries in conditions of insufficient financial support (subsidies) from the state. In addition, the need to develop special training programs for the effective use of technologies is emphasized, which will make it easier for beekeepers to gain a competitive advantage, in particular, improving the quality of products, developing an appropriate marketing strategy and making effective decisions based on databases. The final part of the article presents the macroeconomic benefits that integrating modern technologies in beekeeping can bring - creating new jobs, increasing the incomes of the rural population, expanding the market, and increasing exports. The need for a comprehensive economic analysis of the field to achieve sustainable and useful technological progress in beekeeping is noted.

Precision phenotyping of a barley diversity set reveals distinct drought response strategies.

Plants exhibit an array of drought responses and adaptations, where the trade-off between water loss and CO2 uptake for growth is mediated by regulation of stomatal aperture in response to soil water content (SWC), among other factors. For crop yield stability, the question is how drought timing and response patterns relate to post-drought growth resilience and vigor. We earlier identified, in a few reference varieties of barley that differed by the SWC at which transpiration was curtailed, two divergent water use strategies: water-saving ("isohydric") and water-spending ("anisohydric"). We proposed that an isohydric strategy may reduce risk from spring droughts in climates where the probability of precipitation increases during the growing season, whereas the anisohydric is consistent with environments having terminal droughts, or with those where dry periods are short and not seasonally progressive. Here, we have examined drought response physiology in an 81-line barley (Hordeum vulgare L.) diversity set that spans 20th century European breeding and identified several lines with a third, dynamic strategy. We found a strong positive correlation between vigor and transpiration, the dynamic group being highest for both. However, these lines curtailed daily transpiration at a higher SWC than the isohydric group. While the dynamic lines, particularly cv Hydrogen and Baronesse, were not the most resilient in terms of restoring initial growth rates, their strong initial vigor and high return to initial transpiration rates meant that their growth nevertheless surpassed more resilient lines during recovery from drought. The results will be of use for defining barley physiological ideotypes suited to future climate scenarios.

Social Media Emotions and IPO Returns

AbstractI explore how investor emotions on StockTwits and Twitter affect initial public offering (IPO) returns. High pre‐IPO enthusiasm is linked to greater initial returns but eventual long‐term underperformance. IPOs with strong early excitement average a 29.73% initial return, but suffer a −8.22% long‐term industry‐adjusted return, showing a gap between early optimism and later results. Analysis of investor communication reveals that financial language and existing information influence these outcomes. There is a growing caution among frequent IPO investors, likely due to past experiences. Despite this, firms with initial high optimism continue to attract postlaunch interest, contradicting their long‐term underperformance.

Sovereign wealth funds as anchor investors in IPOs: Evidence from India

Prior literature on SWFs exclusively focuses on SWFs' secondary market investments due to the lack of publicly available IPO allocation data. For the first time, this study examines SWFs' primary market investments using a unique dataset of IPOs from India, a country which has a transparent and flourishing IPO market that has attracted large sums of money from SWFs in recent years. Specifically, this study investigates the investment strategies of SWFs as anchor investors in Indian IPOs and their impact on IPO performance. We find that SWFs target IPOs that are larger, attract high pre-market demand, involve lower dilution of owners' stake, and are issued by large and profitable but financially-constrained firms. We also find that anchoring by SWFs has a positive impact on IPO performance. In the short term, SWF-anchored IPOs outperform other anchored IPOs with respect to initial returns, IPO demand and extent of price revisions. In the long run, the buy-and-hold abnormal returns of SWF-anchored IPOs significantly exceed that of other anchored IPOs as well as the market. SWF-anchoring significantly improves issuing firms' post-IPO operating performance too. Overall, our findings support the hypothesis that SWFs may be superior stock-pickers and valuable monitors, leading to better short-term and long-term performance of their primary market targets.

IPO Underpricing Analysis: Underwriter Reputation as A Moderating Variable

Research Aims: This study investigates the impact of company qualities and financial performance on underpricing (initial return) in firms undergoing initial public offerings from 2020 to 2023, with underwriter reputation moderating in this relationship. Design/methodology/approach: The study employed purposive sampling as the sampling strategy. The analysis technique used in this research is to use SEM (Structural Equation Modeling) analysis. Research Findings: The study's findings suggest that profitability and finance leverage have a detrimental impact on underpricing. Company Size and Company Age have no impact on Underpricing. Underwriter reputation can influence the impact of Return On Assets on Underpricing, but it does not affect the impact of Age, Size, and Equity Ratio of the Company on Underpricing. Firm size, age, return on assets, debt-to-equity ratio, and underwriter reputation are the variables that lead to underpricing. Theoretical Contribution/Originality: This study examines how underwriter reputation influences initial return and other parameters, including the debt-to-equity ratio, company age, organisation size, and return on assets. Prior studies used underwriter repute as an independent variable. This study's implications pertain to the initial market bidding activities of companies preparing to go public and other stakeholders interested in investigating factors affecting initial return. These stakeholders include potential investors considering the initial public offering, companies planning to go public, and researchers conducting further studies on this subject.

Preopening auctions and price discovery in initial public offerings

Using a proprietary dataset for 97 IPO firms, we examine investors’ trading activities in newly listed firms during the one-hour preopening auction on the Bombay Stock Exchange on the listing day. We document significant price discovery during the preopen. We find that the offer-to-first quote returns largely explain IPO initial returns. The probability of informed trading is much higher during the preopen than during the trading day, and trades by institutional investors are more informative than those by other investors. We also find that illiquidity decreased after the introduction of the preopening auction.

The individual motivation of investors' gambling mentality: Empirical evidence from gambling sentiment and lottery‐type stocks

AbstractWe construct a measure of public gambling sentiment using the Baidu index and empirically examine the influence of temporal fluctuations in gambling sentiment on the performance of lottery‐type stocks. The empirical findings reveal that heightened gambling sentiment correlates with increased selling volume, short‐term order imbalances and liquidity in the lottery‐type stock market, while diminishing abnormal returns, including the initial returns of IPOs. We attribute this to investors' gambling mentality stemming from the accumulation of wealth rather than the pursuit of excitement, as they view lotteries and lottery‐related stocks as interchangeable investment options.

Effects of educational disruption and changes in school context on children's mental health: Associations with school level disadvantage and individual bullying involvement

AbstractNatural disasters happen across the world. The situations are different but the disruption to children's education and wellbeing is similar. This study focused on the school context changes caused by the COVID‐19 global disaster, and the impact of these changes on children's mental health. The aim was to better understand the associations between any mental health changes and children's school level of deprivation and pre‐disaster involvement in bullying. Cross‐sectional data were collected from 4316 children aged 6–11 years old, from 57 schools across England and Wales. Data were collected before the national lockdowns, early 2020, and 3–5 months after the final return to school, summer 2021, when schools were operating under a range of context restrictions. Child data included bullying involvement at school and health‐related quality of life; teacher data included reports of each child's internalising, externalising and prosocial behaviours. School‐level disadvantage was determined by the proportion of children in each school eligible to receive free school meals (an indicator of family disadvantage). The results showed that victims of bullying pre‐lockdown, and pupils from schools with a higher concentration of disadvantage, had significantly reduced externalising behaviours once back in the restricted school context. Victims had also increased their prosocial behaviours. It is possible that the restricted school context may have been a relief for the most vulnerable pupils. This study adds a new phase of understanding to the global disaster literature and the initial return to school when the environment is the same but the context has changed.

The Impact of Financial Performance on Initial Returns of Companies Conducting Initial Public Offerings in Indonesia

The Impact of Financial Performance on Initial Returns of Companies Conducting Initial Public Offerings in Indonesia