IPO Performance Research Articles

Too much of a good thing: Addressing the shape of relationship between positive media sentiment and IPO performance

The influence of mass media sentiment on the IPO performance of newly listed firms has received increasing research attention in management and entrepreneurship research. However, prior literature assumes the beneficial role of positive media sentiment in investors’ evaluation of the firm yet overlooks the potential downside of too much positive media sentiment. Based on two theories, dual processing theory and celebrity theory, we develop and test a curvilinear relationship between positive media sentiment and newly listed firms’ IPO performance. Further, we suggest that IPO market conditions, offering an important information cue, moderate this curvilinear relationship. Drawing a representative sample of newly listed U.S. firms in recent decades, we find support for the proposed inverted U-shape relationship and a moderating effect of market conditions.

The underpricing and long-term performance of Chinese IPOs listed on the Hong Kong exchange

PurposeThis study aims to inform prospective listing firms, investors and regulators of the unique drivers of Chinese initial public offering (IPO) pricing on the Hong Kong Exchange.Design/methodology/approachUsing a hand-collected IPO dataset, we investigate whether information uncertainty or investor exuberance drives underpricing and Chinese IPOs’ performance from 2002 to 2015, including 114 state-owned enterprises (SOEs).FindingsContrasting with the “listing bubble” in the China domestic stock market, generated by the overoptimism of retail investors, we highlight a “placing bubble” among Chinese firms listed in Hong Kong. This is driven by institutional investors’ buoyant demand for Chinese IPO shares, particularly those of SOEs. Chinese listing firms employ discreet earnings management strategies with their working capital accounts to smooth pre-IPO earnings, which becomes apparent to the market only in the long term.Originality/valueThis study is the first to examine the pricing of sought-after Chinese IPOs among international investors, who face various restrictions when investing in the Chinese domestic stock market. Additionally, it is the first study to measure earnings management using hand-collected pre-IPO data in IPO underpricing studies.

ESG practices disclosure and initial performance of Malaysian IPOS

Companies’ decision to go public is risky because of the high uncertainty level from the companies’ unknown history prior to their listing. Recent studies in the Malaysian market reported the declining trend of companies’ initial performance, relating it to investors’ current demand for higher information transparency that can reflect companies’ sustainable evolution as a means to attract their demand in subscribing newly issued shares. Thus, this study aims to investigate the impact of disclosing ESG practices on companies’ initial performance. Using a linear regression with maximum likelihood (ML) estimation, this study examines 171 initial public offerings (IPOs) issued in the Malaysian market from 2015 to 2023. By using two ways of measuring companies’ initial performance (offer-to-open and offer-to-close), the findings show that higher information disclosure on ESG practices will only be reflective and positively affect companies’ performance by the end of the day. Further examination of individual ESG pillars indicates that environmental disclosures negatively influence companies’ initial performance, while social and governance disclosures positively influence companies’ initial performance. A large investment in maintaining a high level of environmental practice can be costly, negatively influencing companies’ performances. Higher social and governance disclosure attracts socially conscious investors and reflects good internal governance, increasing demand for the companies’ shares during the IPO and positively influencing companies’ performances. This study contributes to the growing literature concerning ESG and post-IPO performances specific to the Malaysian market and proposes recommendations on the importance of disclosing ESG practices prior to their IPO. AcknowledgmentsThe authors would like to acknowledge that this article is part of a research project funded by Universiti Teknologi MARA (UiTM) for the MyRA Grant Scheme, file no: 600-RMC 5/3/GPM (118/2022).

Investigating the Impact of Regional Digital Finance Development on Short-run IPO Performance: Empirical Evidence from China

Investigating the Impact of Regional Digital Finance Development on Short-run IPO Performance: Empirical Evidence from China

Equity crowdfunding IPOs: Under or overpricing? The case of Poland as an example of quickly catching up economy

Research background: The majority of research on equity crowdfunding concerns its evolution in developed countries. There are still relatively few works devoted to equity crowdfunding in developing regions, including Poland. Taking this into account and the lack of research on the effectiveness of ECF-based IPOs, there is a research gap that this article is trying to fill. This paper also contributes to the extensive literature dealing with the occurrence of the IPO underpricing phenomenon and focuses on a regional study on IPO underpricing in the still niche ECF-based IPOs. Purpose of the article: The article aims to show the development of equity crowdfunding in Poland. The article also aims to (i) evaluate the effectiveness of debuts of companies that raised funds (and thus carried out their IPOs) using ECF platforms, and (ii) find the determinants of ECF-based IPOs performance. Methods: The model for testing the potential determinants of ECF-based IPO performance is based on univariate linear regressions measuring the relationship between a dependent variable which stands for ECF-based IPO underpricing and one independent variable (chosen from a set of potential explanatory variables. Findings & value added: The article shows that since 2020 ECF has become an important source of financing for listed SMEs in Poland. Based on the stylized fact on the risk-return tradeoff, it is assumed that ECF-based IPOs are more underpriced than IPOs of other companies to attract investors. The paper revealed that the effectiveness of ECF-based IPOs has mainly the cyclical nature and it depends on the stock price cycle. ECF-based IPOs are more underpriced then other IPOs only in the bull market while in the bear market they are more overpriced. To the best of my knowledge, this is the first study to explore the performance of ECF-based IPOs. Although this paper focuses on Poland, it opens the potential for broader global research in this area. The article can also hold significant practical value for all participants of the ECF market.

An Analysis of Factors Affecting IPO Performance Based on Alibaba IPO

In this dynamic era of technological innovation and information flow, an increasing number of internet companies and e-commerce platforms emerge in endlessly. The level of capital injection is a crucial consideration for companies who desire to expand or innovate, especially for internet companies during the period of rapid development. As a result, going public will be a plausible solution for firms as they are not only able to get sufficient financial support, but also to gain competitiveness. However, companies always need to make some choices when going public: Which and how many underwriters do they need? Which stock exchange do they want to be listed? How should shares issued by a company be priced? Companies need to develop a far-sighted mind to look at this event, along with an innovation strategy that enable businesses to gain a firm foothold in the international market. This paper explains the factors that companies have to take into account in their IPO processes. The IPO event of Alibaba, which shows double-edged effects, is discussed in detail.

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.

SPAC IPO의 장기 영업성과

As SPAC IPOs increase in Korea, market interest is growing, but related research is lacking. In this study, we track the performance of SPAC IPOs, especially changes in operating performance before and after listing. For this purpose, we use a sample of 62 SPAC IPOs conducted between January 2010 and December 2022 to compare the operating performance of the year immediately before listing and the third year after listing. As a result, efficiency indicators tend to worsen, but the operating performance of SPAC IPOs as measured by profitability indicators does not worsen. These results are significantly different from the widely known phenomenon that stock performance in the IPO market, not only in the United States but also around the world, shows significant long-term underperformance and, consistent with this phenomena, operating performance of SPAC IPOs also shows significant long-term underperformance. Therefore, unlike the USA, SPAC investors in Korea are not continuous losers, and the SPAC IPO system is likely to be a good policy alternative to traditional IPOs.

IPO performance anomaly: evidence from new aged ventures and loss-making listings in India

PurposeThe study examines the IPO resilience grounded on the firm’s intrinsic factors.Design/methodology/approachWe examine the association of IPO performance and post-listing firm’s performance with issuers' pre-listing financial and qualitative traits using panel data regression.FindingsIPOs floated in the Indian market from July 2009 to March 31, 2022, evince the notable influence of issuers' pre-IPO fundamentals and legitimacy traits on IPO returns and post-listing earning power. Where the pandemic’s favorable impact is discerned on the post-listing year earning power of the issuer firms, the loss-making issuers appear to be adversely affected by the Covid disruption. Perhaps, the successful listing equipped the issuers with the financial flexibility to combat market challenges vis-à-vis failed issuers deprived of desired IPO proceeds.Research limitations/implicationsHigh initial returns followed by a declining pattern substantiate the retail investors to be less informed vis-à-vis initial investors, valuers and underwriters, who exit post-listing after profit booking. Investing in the shares of the newly listed ventures post-listing in the secondary market can shield retail investors from the uncertainty losses of being uninformed. The IPO market needs stringent regulations ensuring the verification of the listing valuation, the firm’s credentials and the intent of utilizing IPO proceeds. Healthy development of the IPO market merits reconsidering the listing of ventures with weak fundamentals suspected to withstand the market challenges.Originality/valueGiven the tremendous rise in the new firm venturing into the primary market and the spike in IPOs countering the losses immediately post-opening, the study examines the loss-making and young firms IPOs separately, adding novelty to the study.

Short run performance of initial public offerings in Nepal

This paper examines the under-pricing and performance of IPO for six months period using the model of under-pricing. Overall, 67 samples are analyzed out of 120 population identified from the period of 2014/15 to November 2020/21 using judgmental sampling and removal of outlying observations. Firm size, subscription rate, issue size, age of firm, issue manager reputation and market condition are taken as independent variables. Nepalese investors mainly prefer microfinance sector for investment and tends to be underpriced for longer period due to high demand for share. Observations are classified into two categories based on mean value of each predicting variable and NEPSE index. Significant difference on initial as well as monthly return has been observed between categories of subscription rate (high versus low) and age (matured versus young). Highly positive and significant correlation between the issue size and firm size shows large firm issue IPO in large size and negative significant correlation between issue size and subscription rate shows when issue size is low there will be high demand for shares. Significant relationship of subscription rate and age of firm for initial and first month return has been observed whereas only subscription rate was found significant after second month to sixth month. Study concludes that subscription rate is major determinant of under-pricing of IPOs in the Nepalese Stock Market.

Effect of Underwriter’s Reputation on Performance of small business IPOs

The purpose of the study is to determine the impact of the underwriter’s reputation on shaping the short- and long-term IPO success of small businesses. The paper uses IPO data from 2012 to 2020, three reputable proxy and event-time methodologies to analyze the company’s performance through market-adjusted excess returns, cumulative abnormal returns and buy & hold returns. Similarly, to mitigate common predispositions, use the calendar-time methodology, Fama-French three-factor model and Carhart four-factor model with high and low reputational groups. The study revealed a significant positive impact of underwriters’ reputations on first-day returns and long-term performance. Overall, the results indicate that, in the longterm, IPOs of Indian small and medium-sized enterprises are over efficient with regard to reputation signals. On the contrary, the calendar-time method and multifactor model indicate the low long-term IPO effectiveness of the SME. According to the authors’ conclusion, this is the first study to assess the impact of underwriter reputation on business performance using several reputation indicators, the calendar time methodology, and the multi-factor model on the ICP’s Indian IPO platform.

Multiple Rounds of Audit Inquiries and IPO Performance under the Registration System - Taking Bright Power Semiconductor as an Example

Under the continuous development of the economic situation, the economic environment is more complex.To cater for development needs of the capital market, the registration system has emerged and developed continuously. The registration system adopts the method of audit and inquiry to conduct multiple rounds of inquiries on issuers, sponsors and accounting firms. Analyse the relationship between the number of inquiries and the performance of IPO. This paper selects Bright Power Semiconductor as the main case for discussion, and compares it with Chipown in the same industry to analyze the relationship between multiple rounds of inquiries and IPO performance.The main contents of this article presents the context and significance of research, content and research methods., and the registration system audit inquiry and related concepts. Then the background and development of registration system audit inquiry and the case company and analyzes the IPO process and motivation of Bright Power Semiconductor. Analyzes the information disclosure, stock impact and development of Bright Power Semiconductor after several rounds of IPO inquiries and compares it with Chipown. Finally, summarizes the conclusions of this paper and puts forward suggestions and shortcomings. The conclusion is that under multiple rounds of inquiries, the quality of the companys information disclosure has been significantly improved and has a favorable impact on the companys IPO performance.

The role of national context in the relationship between founder CEO and IPO performance

PurposeAlthough founders are often replaced with external CEOs prior to firms making IPOs, firms that do retain founder CEOs generally perform better at IPO. However, this relationship may be contingent upon context. This study aims to investigate how national context influences the relationship between a founder CEO and IPO long-run performance. The authors hypothesize that founder-CEOs will perform better in IPO firms in countries where managerial discretion, future orientation, and the level of conformity to professionalize management are high, and uncertainty avoidance is low.Design/methodology/approachUsing insights from the upper echelon and institutional theory, the authors used hierarchical linear modeling to analyze over 1,000 firms across eight countries.FindingsFounder CEOs perform best in IPO firms in a national context where managerial discretion is low, uncertainty avoidance is high and the level of conformity is high.Originality/valueThis study contributes to a growing area of cross-national IPO research in management by investigating the relationship between culture, management and IPO performance.

A Study on the Correlation Between Regulatory Inquiries and the IPO Performance and Share Price Performance of Companies – A Case Study of Tibet Duo Rui Pharmaceutical

Regulatory inquiries are becoming more and more common these days. In a broad sense, corporate regulation is the act of auditing, evaluating and intervening in the compliance, authenticity and legal compliance of a company's objectives and results so that the corporate governance system operates healthily. Whether a company's being regulated has various impacts, positive or negative, on performance and share price is explored using the event study method, and the number of regulatory inquiries and questions asked of the company is described in detail using Duo Rui Pharmaceuticals as a case study, with a brief summary of the company's responses. This article analyses the impact of the company's performance after the IPO, starting with operating capacity, profitability and growth capacity, and comparing the data before and after the IPO. The comparison reveals that the overall operating capacity is slightly lower than before the IPO, and the company's profitability also shows a decline and a significant decline in growth capacity, indicating a reduction in the scale of the company's development. Regarding the correlation between regulatory enquiries and share price performance, the number of enquiries made to all GEM-listed companies under the registration system and the price suppression rate is statistically significant. It can be seen that the number of IPO enquiries directly impacts the price suppression rate of companies; the more IPO enquiries are made, the lower the price suppression rate.

Research on IPO Listing Inquiries of Information Transmission, Software and Information Technology Services Industry

IPO inquiries are one of the key topics of research today. Scholars have identified many issues, but there is still a gap in the research on the correlation between IPO inquiry rounds and performance. Therefore, the research topic of this paper is a study of IPO inquiries in the information transmission, software and information technology services industry. The research methodology of this paper is as follows: firstly, we collect the questions and results of IPO inquiries, screen the data, and then calculate the volatility and the underpricing of each round of IPO inquiries by comparing the data. Finally, the total number of questions asked by IPO companies was counted in order to identify high-frequency key questions. The study finds that IPO inquiries have a significant impact on the timing of IPO, the underpricing and volatility of companies. The study suggests that the enterprises being questioned should do a good job in related areas and improve the quality of information disclosure to reduce the negative impact of IPO inquiries. Regulators should improve the monitoring of information disclosure quality of listed companies to protect investors' rights and interests and enhance the governance role of IPO inquiries in capital market resource allocation. Investors should always pay attention to the process and results of IPO inquiries of the companies they care about, and understand the financial status and management system of the companies through IPO inquiries, so as to facilitate their own investment and protect their own rights and interests.

Judging a book by its cover: Analysts and attention-driven price patterns in China's IPO market

This study investigates the effect of analyst coverage in the primary market on IPO performance. Using a novel data set on analyst coverage in China's IPO Market, we find that the number of analysts covering a firm is positively associated with IPO initial returns. We also show that analyst coverage is positively related to small trading activities during the first trading day. Instrument variable analysis and other robustness tests provide consistent estimates. Additional analysis suggests that analysts attract the attention of individual investors, who then drive IPO initial returns and long-term price reversals in the post-IPO market. These findings contradict the argument that analysts reduce information asymmetry and instead support the attention hypothesis.

From “Super App” to “Super VC”: The value-added effect of China's digital platforms

This paper studies China's big digital platforms’ value-added effect as venture capitalists, using a dataset of companies registered in China that eventually reach the initial public offering stage. We find that China's digital platforms’ investments positively affect their portfolio firms’ IPO performance, in terms of higher IPO valuation, lower underpricing, and shorter time to reach the IPO stage, which is inconsistent with the grandstanding hypothesis. The plausible underlying channels are the certification and monitoring roles played by China's digital platform. The results remain robust after addressing several concerns. Our study sheds new light on VCs’ characteristics and digital platforms’ activities.

IPO Underpricing and Short-Term Performance: A Comparative Analysis During the COVID-19 Pandemic and Tranquil Periods in a Cross-Country Setting

ABSTRACT This study presents a comparative analysis of under-pricing and short-term performance of IPOs issued during the COVID-19 pandemic period and the pre-pandemic tranquil decade (2009 to 2019) in a cross-country setup. We find evidence of higher underpricing of IPOs issued during COVID-19 which, however, gets corrected shortly. Factors, such as underwriter reputation, percentage of the net proceeds to the company, new shareholder participation, industry affiliation of the issuing firm and the severity of the pandemic in respective countries seem to affect these patterns. Our results are robust and remain mostly unaltered through a series of robustness tests.

Predicting IPO Performance from Prospectus Sentiment

With the development of society, how to apply artificial intelligence in finance becomes a hot topic. IPO performance is the most significant part of these areas. Therefore, this paper aims to use sentiment analysis to predict the IPO performances in the Hong Kong stock market. In specific, 6 machine learning models are trained, namely Random Forests, Decision Tree, Naïve Bayes, Logistic Regression, LightGBM and a stack model to predict the direction of Hong Kong stocks IPO performances (positive, negative, or little change) in 3, 5,10, 20 and 30 days after their IPOs. This paper will compare all the models with a baseline model which generates random guesses for the direction of IPO performances to conclude about which model works better and which one is more predictable. This paper will show that instead of logistic regression, random forest performs relatively the best across all Ys, and this may be due to the different sample size.

Board diversity and post-IPO performance: the case of technology start-ups

ABSTRACT IPO firms in the technology industry are regarded as vulnerable due to their limited resources, inexperience, and relatively short technology and product lifecycles. They also lack a track record to signal to the market that they are equipped with sufficient ability to overcome the challenges faced in this highly competitive environment. This study examines whether board diversity helps IPO firms perform better in such a challenging environment; furthermore, we explore the potential contingencies that magnify or weaken the benefits of board diversity by examining how its impact is moderated by firm size and board tenure. Using a sample of 363 IPO events within technology firms over 11 years, we find that higher board diversity is associated with better post-IPO performance; however, a larger firm size and longer board tenure decrease the value created by board diversity. The findings are robust to alternative measures of performance and board diversity. Our study contributes to the literature by demonstrating the significant impact of board diversity on the performance of technology IPO firms as well as explaining the conditions under which boards effectively execute their resource dependence roles.