IPO Performance Research Articles

An Investigation of IPOs Initial Performance in Indonesian Market

The purpose of this study is to investigate the initial public offering in Indonesia as one of the largest emerging markets in Asia. The focus of this study is IPOs’ behaviour, which is determined by underpricing and overpricing. The data consist of companies that launched IPOs on the Indonesian Stock Exchange (IDX) from January 2015 to June 2019. The methodology used in this study is an ordinary least square regression with a cross-sectional analysis. The result shows that IPO’s behaviour tends to be underpriced. However, overpricing might occur in several cases. A broad theoretical framework was used to initialize all the predictors of IPO, and we found that the firm age, gap of day, risk, hot periods, corporate social responsibility (CSR) and privatization showed a significant influence, while other variables, that is, IPO size, investor sentiment, rank lead underwriters, market volatility and board lists did not show significant results. This article adds to existing literature by providing a sample from 2015 until the second quarter of 2019 in Indonesia during a time of hot periods with market uncertainty and US–China trade war. This article adds to the signalling theory related to IPO by analysing the impact of CSR on IPO performance.

Social Capital and the Pricing of Initial Public Offerings

Using a sample of 4,892 IPOs in the United States from 1990 to 2019, we establish that the level of social capital in the county of the IPO firm’s headquarters is negatively associated with the level of IPO underpricing. The relation holds for a range of robustness tests, including those addressing endogeneity. Additionally, the relation is weaker among IPO firms with less information uncertainty, and stronger for IPO firms with more agency problems. Overall, our results demonstrate the importance of social capital as an informal contracting mechanism in enhancing the pricing and performance of IPOs.

Are Women Underpriced? Board Diversity and IPO Performance

We show that investor preferences for diversity have had a significant effect on the initial returns earned by U.S. firms going public with gender diverse boards over the past decade. There is no difference in economic fundamentals, such as profitability, between these firms and firms without gender-diverse boards following the IPO. The underpricing appears to reflect recent institutional investor demand for diverse firm boards during the IPO process, possibly as a result of social pressure or an increased focus on corporate social responsibility.

IPO Price Formation and Board Gender Diversity

IPO Price Formation and Board Gender Diversity

Legal Perception and Finance: The Case of IPO Firm Value

In this paper, we contribute to the literature on institutional determinants of IPO valuation. We introduce the concept of ‘legal signaling,’ which focuses on the perception of the quality of law and thus complements the existing institutional approaches to IPO valuation which consider the quality of the positive law (‘standard view’) and firm-level corporate governance practices (‘firm signaling view’). Our approach explicitly models the difference between the effect of the positive law and the effect of the perception of law on IPO value. Based on a worldwide longitudinal dataset of IPO performance across a large number of countries, we find strong support for the claim that the perception of the quality of law is more important than its actual quality to explain post-IPO firm value. This effect holds regardless of whether the law’s quality is correctly perceived or misperceived. Overall, our findings underscore the need for a more sophisticated theorization of the ways in which law affects entrepreneurial finance.

The Influence of Growth Opportunities on IPO Initial Aftermarket Performance

This study examined the influence of growth opportunities of firms on the immediate aftermarket performance of IPOs. The growth opportunities were defined as the amount of proceeds received during IPOs to activities that support the growth of a firm, such as assets acquisition, and research and development (R&D). Acknowledging that not much information about a firm is possibly received by investors prior to its listing in a stock exchange, investors will rely mostly on the information supplied in the “Prospectus” as a reliable channel of their participation evaluation in the IPO firm. One crucial piece of information is on the allocation amount of IPO proceeds as it should signal the directions of a firm in the aftermarket. This study proposes that an IPO firm would have a larger potential to grow if it allocates a bigger amount of proceeds to growth activities, which will encourage higher demand on and subscription of shares of the IPO firm. Eventually, the higher demand would lead to a higher share price of the firm and a higher return for investors in the aftermarket. Leveraging this proposition, a total sample of 436 IPOs listed on Bursa Malaysia from 2000 to 2017 were tested using the multiple regression analysis. This study reveals that the amount of proceeds allocated to growth activities are positively and significantly related to the return of IPOs in the initial aftermarket.

Board Structure, Ownership and Performance of Indian IPOs: An Empirical Investigation

This paper is an attempt to explore the signaling effect of corporate governance mechanisms on IPOs of emerging market economy. Using a sample of 124 Indian IPOs for the period April 2009 to March 2015, the study tries to find out the impact of board characteristics and share ownership of different stakeholders on short and long term IPO performance. In Indian context, this paper makes the first attempt to highlight the impact of corporate governance mechanisms on long run IPO performance, measured by market adjusted buy and hold returns (BHR). The results of the analysis show that in Indian context, subscription rate, equity retention by executive and non-executive directors and promoter CEO have significant impact on IPO underpricing. Board size, promoter CEO and retained strategic investors ownership have significant impact on IPO long run performance. Overall the results show that corporate governance attributes play a limited role in explaining underpricing and long run IPO performance in Indian context. However, investors can use the corporate governance attributes as certificate mechanisms to select potentially high value IPOs for both short and long-term investments. The issuing firms can restructure their boards and ownership patterns to enhance the value of the firm, to get fair value of their IPOs and benefit their long-term shareholders.

Certification role of transparency and anchor investors in Indian IPOs

The study examines the effect of bidding information of anchor and other institutional investors, on retail investors' subscription and short-term IPO performance in the Indian market. The study also tries to find out specific anchor investors' characteristics which influence investor decisions. The results show that anchor investors play a certification role for institutional investors only. Both institutional and retail investors follow bids of each other during the book-building period. High institutional and retail subscriptions have a positive effect on initial returns. In anchor-backed IPOs, unique business group participation and anchor over-subscription have a high positive impact on both subscription and IPO initial returns.

지배주주의 소유-지배 괴리가 IPO 성과에 미치는 영향

지배주주의 소유-지배 괴리가 IPO 성과에 미치는 영향

Underwriter Reputation and IPOs Performance

In this paper, it is defined that how the IPOs are affected by the underwriter reputation. What will happen to IPOs who are backed by reputed underwriter and who is not? And evaluate the IPOs short-run and long-run performance. Also try to explain the relationship between IPOs and underwriter. Also tried to compare some of the international return and Pakistani returns. Also determine the relation of the investor to the underwriter. There is a set of investors who have their relationship with the underwriters how they will affect on the IPOs in the market.

MEASURING IPO PERFORMANCE THROUGH INDUSTRY-ADJUSTED MODELS

We investigate operating performance of Turkish IPOs between January 2010 and December 2017 through well-specified industry- and performance-adjusted models advocated by Barber and Lyon (1996). We find that issuers underperform matched peers in the long-run regardless of the choice of model. Any improvement in performance is either temporary or precedes the issue. We conclude that performance improvements observed around the issue do not extend to long-term, because better profitability could point to earnings management which leads to earnings reversal, while improvements in leverage and liquidity end when proceeds are exhausted

Too Much of Good Things: Addressing the Shape of Relationship Between Media Sentiment and IPO Outcome

The influence of mass media sentiment on newly listed firms’ IPO performance has received increasing attention in management research. However, prior literature assumes the positive role of media sentiment in investors' evaluation of the IPO firm. It overlooked the potential downside of the excess level of positive media sentiment. Base on social cognition theory, we contribute to this growing body of research by theorizing and testing a curvilinear relationship between media sentiment and firms' IPO performance. Further, from a social cognitive perspective, we argue that this curvilinear relationship is being moderated by external information cues such as IPO market conditions. Drawing a representative sample of newly listed U.S. initial public offerings from the year 2010 to 2018, we found supports for the proposed inverted U shape relationship between media sentiment and IPO performance. However, such a relationship is being moderated by IPO market conditions. Our framework and findings highlight the complexity and dynamics of media influence on IPO performance.

Corporate Governance and Foreign IPO Underpricing: A Configurational Approach

Drawing on a configurational approach fuzzy-set Qualitative Comparative Analysis (fs/QCA), the study investigates different bundles of governance mechanisms that can mitigate information asymmetry surrounding foreign IPO firms in the U.S. capital market, thereby affecting their IPO performance. With a focus on relatively unexplored role of debt governance in the context of foreign IPOs, we examine how debt interacts with various governance practices and changes effective configurations of equity-based governance mechanisms. Finally, the empirical results demonstrate multiple governance bundles coexist that can effectively mitigate information asymmetry in the U.S. capital markets and lead to low underpricing, i.e. equifinality; and the constellations of governance mechanisms that lead to high underpricing are fundamentally and qualitatively different from those lead to low underpricing, i.e. asymmetric causality.

Corporate Governance and the Pricing of Initial Public Offerings: Evidence from Global Board Reforms

We document that global board reforms are associated with a significant reduction in IPO underpricing. The effect is amplified for IPOs with greater agency problems and mitigated for IPOs certified by reputable intermediaries, IPOs with greater disclosure specificity, and IPOs in countries with better shareholder protection and stringent financial reporting regulations. Furthermore, global board reforms have led to an improvement in the long-term market performance, proceeds, and subscription level of IPOs, and have enhanced board independence in the issuing firms. Our findings suggest that global board reforms have strengthened board oversight in the issuing firms, leading to less underpriced IPOs.

Imprinting Effects of IPO Underpricing on the Future Strategic Actions of High-Tech Firms

Prior research has shown that firm founding can leave an imprint on the firm and its managers that influences choices the firm makes years after founding. We extend this literature by showing how another epochal event in the firm’s lifecycle, its initial public offering, imprints the firm and influences its actions years after the completion of the IPO. Focusing on high-tech IPOs, our findings show that when evaluating risk-related decision options, firm managers act in response to feedback they received in the IPO process. Further, these responses are moderated by the degree of inertia experienced by the firm and manager, with higher levels of inertia strengthening the imprinting effects. Thus, our research contributes to the imprinting literature by providing evidence for another sensitive corporate phase which imprints an influence on corporate decisions. We also contribute to the IPO literature by going beyond short-term effects of IPO performance to examine the long-term impact of the IPO event.

The impact of public ownership and share warrants on market performance of IPOs: Evidence from the Indonesian Stock Exchange (IDX)

The aim of this study is to examine the relationship between public ownership (public float), share warrants and the market performance of IPOs on the Indonesia Stock Exchange (IDX). The public ownership is measured as the percentage of shares held by the public after the IPO, share warrants are measured as dummy variables, and market performance is measured by both initial returns and 36 months cumulative abnormal returns. The test is conducted by OLS and Quantile Regression to find out whether the percentage of shares held by the public after the IPOs and warrants offering have relationships with both the initial and the long-term shares market performance. The sample consists of 124 IPOs companies during 2009-2014. OLS shows not only that public float and warrant offerings are related to initial returns, but also warrants mediate the relationships between public float and initial performance. The analysis with quantile regression shows that the positive relationship between public float and short-term market performance occurs in the IPO with middle-level initial returns (i.e. between 40th to 60th quantiles). The effect of warrant offerings on initial returns simply does not appear on the lower quantiles (10th through 30th quantiles). We find no relationships between public float and warrant offerings with the long-term market performance, which gives an indication that warrant offerings in Indonesia are a form of staged financing policy.

Long-run price performance of local and dual class IPOs in alternative investment market

Earlier studies document that IPOs are underpriced in the short-run and underperformed in the long-run. In almost all studies, researchers analyze the IPO performance using the dataset from highly liquid markets. However, the pricing behavior of IPOs in the Alternative Investment Market (AIM) is different. There is a reason to expect the price performance of IPOs in the AIM to be significantly different from IPO performance in traditional markets mainly because of the diminished liquidity of AIM offerings as well as the meager disclosures required in comparison to traditional markets. To test our propositions, we select 292 IPOs listed on AIM during the period between 2001 and 2016 and apply the Extreme Bound Analysis (EBA) to determine the factors that cause longer-term performance. This study reports that investors in the alternative markets earn significant positive returns if the stock is held for three years, and the price variation is dependent upon the firm size. This illustrates that investment in small-sized firms seems more profitable as compared to those of large-sized firms in the AIM. Moreover, this study examines statistical evidence bearing on the question of whether early investors in IPOs can expect abnormal excess returns in the long-run.

Unlock Day Expiration and Mandatory IPOs Lock up Among ACE Firms in Malaysia

This research studied the role of lockup in assessing price and volume of IPOs during the expiration of lockup in Malaysian market. The reaction of price is measured by the abnormal return while the reaction of volume is measured by the abnormal volume. The companies were selected from the years 2010 to 2018 and only companies that were still listed in Bursa Malaysia were chosen. The time frame of the study was 30 days before and 30 days after the expiration date of lock up provision. The results may show for these circumstances of i) the volume will remain and the price will decrease; ii) volume will be decreased and price will be decreased too and iii) promoters retain percentage of shares during expiration date. For situation number i), it might show the sign of a quite good quality of performance of IPOs in stock market. Evidently, the second circumstance shows decrease in price and volume of IPOs after expiration date. The scenario actually leads by demand and supply of stock. Another important evidence which supports the insignificant result is promoters retain percentage of shares during expiration date. The amounts that should be released by the companies are not offered to the market during that time. By looking at the Signaling Theory, insiders of IPOs firms who are previously restricted from selling their holdings have the first chance to sell large propositions of their shares. Investors will know the dates of IPO lockup expiration and numbers of shares by looking at the prospectus. Due to the scenario, the price and volume of IPOs will be reacting during expiration date based on this theory. It is hoped that this study will help investors or any Malaysian market participation especially in the IPOs market to notice the situation in Malaysian market regarding the lock up provision.

Patent growth and the long-run performance of VC-backed IPOs

This study analyzes the impact of venture capital (VC)-backed IPO firms’ patent growth during the period of VC investment on the long-run performance of stock returns, using data on the China A-share market between 2003 and 2013. The baseline results indicate that VC-backed firms that have generated successful patent filings during the investment period of VCs exhibit superior post-IPO performance compared to other VC-backed firms and non-VC-backed firms in the long run. These results continue to hold under several robustness checks. Overall, we provide a clear, crucial mechanism showing that venture capital improves the long-run performance of IPOs by increasing the number of granted patents of portfolio firms; that is, technological innovation is the major contributing factor to the long-run performance of VC-backed IPOs.

Investor relations and IPO performance

We analyze the value of investor relations (IR) strategies to IPO firms. We find that firms that are less visible and have inexperienced management tend to hire IR consultants prior to the issue date. IR consultants help create positive news coverage before an IPO, as reflected in a more optimistic tone of published media. Their presence is associated with higher underpricing at the IPO date but with lower long-run returns. IR-backed IPOs also exhibit disproportionately higher insider-related agency problems, as IR-induced higher underpricing tends to occur primarily in IPOs where underwriter and venture capitalist agency conflicts are more severe. These findings suggest that the IR programs of IPO firm are mostly short-term oriented and facilitate the ulterior motives of some insiders (underwriters and venture capitalists) targeting higher first-day returns.