IPO Pricing Research Articles

A Study on The Causes of Chapanda Broken IPO

China's new tea industry has recently been exploring overseas listing opportunities, with two companies experiencing breakdowns in their Hong Kong IPOs. ChaPanda, the second new tea beverage company to list, saw a year's worth of turnover evaporate on its first day on the Hong Kong stock market, falling far below investors' expectations. Back in 2021, the IPO of "Nayuki's Tea" on the Hong Kong Stock Exchange also faced a similar breakdown, attributed to overpriced valuations in the new tea beverage industry. These above-average IPO valuations are often influenced by online public opinion and media evaluations, affecting both IPO pricing and stock prices on the first day. Additionally, since the outbreak of the COVID-19 pandemic, mainland companies breaking on their first day of IPOs on the Hong Kong stock market have remained relatively high compared to the overall market. This article uses ChaPanda as a case study to explore the reasons behind the frequent IPO breakdowns in the new tea beverage industry on the Hong Kong stock market. It examines three key aspects: industry background, enterprise valuation efficiency, and investor sentiment, as well as the issuance risks of listing on the Hong Kong Stock Exchange. The aim is to provide practical references and suggestions for reasonable pricing of future IPOs in the same industry.

Institutional investors’ role in implementing book building: Views of market participants

The aim of this paper is to assess the views of market participants concerning the institutional investors’ role in implementing book-building pricing of IPOs as Nepal seeks to implement it. A total of 125 market participants were approached for data collection using a structured questionnaire that took a six-month period from January to June 2020. Descriptive and inferential statistics were employed to analyze the collected data. The study found that the role of institutional investors in the prevailing stock market is brutally meager because of the restrained regulatory provisions. Market participants opined that institutional investors play a vital role in developing the stock market and executing book building. Implementation of book building demands a rigorous amendment in the existing regulations that allow institutional investors to enter and play in the market. A precise classification and definition of the potential roles of institutional investors are essential so that the application of the building pricing mechanism could be expected to be more effective. Market participants believed that the active participation of institutional investors will help lure manufacturing and real sector companies, trading houses and hotels into the capital market for public offerings. Issue managers, portfolio managers, share registrars, and stockbrokers agree that the role of institutional investors is inevitable in implementing book-building pricing.

Determinants of IPO Overpricing

AbstractThis paper outlines the phenomenon of negative first‐day IPO returns. Using a comprehensive sample of IPOs in the United States between 2000 and 2020, we find that 21.61% exhibit negative first‐day returns, making this a common feature of the US IPO market. The key findings show that the IPO mechanism is important. A larger deal size and proportion of over‐allotment shares reduces the probability of IPO overpricing, while downward offer price adjustments increase the likelihood of negative first‐day returns. Despite distinct differences, the analysis reveals shared characteristics between IPO underpricing and overpricing, providing nuanced insights into IPO pricing. Neither market timing nor agency issues significantly affect IPO overpricing.

Study Case: Company Valuation and Forecasting Financial Trends at PT PP London Sumatera Indonesia (LSIP)

PT PP London Sumatra Indonesia Tbk (LSIP) is a company that has been established in Indonesia since 1906 and started its IPO in 1996 with an IPO price of Rp4.650 for each share. Even though the company’s performance is going well and the trend of palm oil consumption in Indonesia is increasing, the share price of PT PP London Sumatra Indonesia Tbk has fluctuated and even decreased when compared to the initial IPO price and share prices in the last 5 years. So this raises the question of how the company’s stock performance will be in the next few years. In this research, the author begins by analyzing the macro-environment which may have an impact on the company and industry, then the author carries out an analysis of the financial statements of the company and its competitors. Apart from that, the author also tries to forecast the company’s financial performance and then continue with company valuation analysis using the discounted cash flow method. After getting the valuation results, the author tries to see the company’s level of sensitivity using scenario analysis and also carries out capital structure analysis to find the optimal capital structure. Based on the results of financial performance analysis, Lonsum (LSIP) has better financial performance compared to its competitors except for assets turnover. And then based on the results of discounted cash flow analysis, this company is not yet worthy of being a place for us to invest. And the last based on all the results of the previous analysis, when compared with competing companies, LSIP is a company that has quite a lot of potential as a place to invest. However, currently the company still has to look for a catalyst in order to become a company that is worthy of being a place for us to invest. Based on the result, the author suggest the reader to continue to collect information related to PT PP London Sumatra Indonesia Tbk, other competitors and plantation in similar industries to find catalysts that have positive impact on the company, and invest when the company has a positive catalyst.

IPO price formation and board gender diversity

Using a sample of U.S. IPOs from 2000–2019, we show that IPOs with at least one female director experience significantly greater underpricing on the first trading day. The effect is not attributable to the previously documented determinants of underpricing or other firm or director characteristics. The underpricing effect is the strongest after 2010—when pressures were placed on firms to diversify their boards—and the effect is mitigated in the very last years of the sample—where we find that gender-diverse board IPOs realize greater offer price revisions and final offer prices, relative to non-diverse board IPOs. The dynamic relation between board gender diversity and IPO price formation coincides with the timing of the diversity campaigns of BlackRock, State Street, and Vanguard, suggesting that investor demand for board gender diversity was not fully incorporated into IPO offer prices until this demand was widely publicized.

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.

The impacts of registration regime implementation on IPO pricing efficiency

We study the impacts of regime changes and related rule implementations on IPOs' initial return for China's entrepreneurial boards (ChiNext and STAR). We propose that an initial return contains the issuer's fair value and an investors' overreaction and examine their magnitudes and determinants. Our findings reveal an evolution of IPO pricing in response to the progression of regulation changes along five dimensions, and the most efficient regulation regime in Chinese IPO pricing has the following characteristics: 1) registration system, 2) no hard return caps nor trading curbs that restrict the initial return; 3) more specific listing rules for issuers, 4) more strict participation constraints for investors, and 5) more stringent information disclosure requirements for issuers and underwriters. In all contexts, we show that the registration regime governing the STAR IPOs offers the most efficient pricing. We make recommendations on future regulation regime reform for China's entrepreneurial boards.

Board chair gender, glass ceiling, and IPO underpricing: Evidence from China

This paper explores the relationship between board chair gender and IPO underpricing from the perspective of glass ceiling. By employing a large sample of IPOs in China, we find firms with female board chairs (FBCs) have less underpricing than those with male board chairs (MBCs), indicating that investors interpret FBC as a positive signal of IPO. This relationship holds after addressing potential endogeneity concerns by instrumental variable regressions and by propensity score matched sample tests. Further studies show this relationship is more pronounced for firms with more internal gender discrimination, more risk-taking, and CEO-chair duality. In addition, we find firms led by FBCs have better operating performance in post-IPO period, but there is no evidence that firms with FBCs are more conservative in financial reporting or risk-taking. The results suggest that the glass ceiling may create more competent female leaders and investors who bid on firms led by FBCs can benefit from post-IPO operating performance. This paper extends research on underlying factors of IPO underpricing and the impact of gender discrimination in corporate leadership, and has implications for gender structure optimization of top management and IPO pricing efficiency.

Comments on the Signaling Theory of IPO Underpricing and Investor Protection Laws

Abstract It has been widely known that good firms use lower IPO prices to signal their superior prospects to investors. The underlying intuition is that good-type firms signal their type by underpricing their initial issue of shares, because investors can rationally infer that only the best can recoup the signaling cost from subsequent issues. In this paper, we argue that the intuition is not complete. We show that a good firm always has an incentive to deviate to raise the IPO price slightly from its equilibrium price if the price is the only signaling device, implying that signaling by underpricing is not an equilibrium phenomenon in the case of one-dimensional signal. Then, we show that if the firm can choose the equity fraction to be sold as well, a good-type firm can signal its high profitability by choosing a low equity fraction. In this case, a good-type firm engages in underpricing, but it cannot be a signal because both types choose same prices in equilibrium. We also discuss the effect of investor protection laws on IPO underpricing.

Research And Analysis of IPO underpricing In the Market with Chinese Characteristics

This paper mainly introduces and popularizes science about IPO underpricing and discusses the characteristics and future development direction of China's securities market. This paper introduces the opinions of domestic and foreign scholars on the IPO underpricing phenomenon from different angles. Finally, through the analysis and summary of resources integration, this paper discusses how to deal with the new strategy of high underpricing rate, and further expounds the future direction of national efforts in the stock exchange market. This paper finds that there is a significant IPO price suppression phenomenon in China's A-share market, which is the IPO issue price of the stock is significantly lower than its listing price. This paper points out the negative impact of IPO price suppression on the effective operation of the securities market, and deeply analyzes the reasons for the existence of IPO price suppression in China.

Two-stage investor sentiment and IPO pricing: Evidence from Japan

Two-stage investor sentiment and IPO pricing: Evidence from Japan

IPO Price Formation and Board Gender Diversity

IPO Price Formation and Board Gender Diversity

Do Carbon Emissions Affect IPO Price Formation and Aftermarket Performance?

Do Carbon Emissions Affect IPO Price Formation and Aftermarket Performance?

Does market sentiment affect IPO pricing

Does market sentiment affect IPO pricing

Does market sentiment affect IPO pricing

Does market sentiment affect IPO pricing

Assessing the IPO Pricing and Factors Influencing IPO Returns in the Indian Market: A Study of 2021-2022 IPOs

Assessing the IPO Pricing and Factors Influencing IPO Returns in the Indian Market: A Study of 2021-2022 IPOs

Underpricing Anomaly and Aftermarket Liquidity of IPOs: An Application on Indonesia Stock Exchange during The Covid 19 Period

Underpricing occurs when the initial public offering price is lower than the stock's closing price on the first day in the secondary market. This study investigates the influence of IPO pricing and ownership retention against underpricing levels in Initial Public Offering at the Indonesia Stock Exchange (IDX). This study also examines the impact of IPO's underpricing on the aftermarket liquidity based on 167 qualified initial public offerings listed at the Indonesia Stock Exchange during the four years from 2019 to 2022. The proxy used to measure underpricing are initial return and market-adjusted abnormal return. This research uses 167 companies as samples. The sampling technique is purposive sampling. The result shows that the IPO pricing influenced the underpricing levels. The results prove that underpricing gets higher when the IPO pricing is closer to the upper limit of the price range offer. Meanwhile, ownership retention does not affect the underpricing level. The paper also found that IPO underpricing influenced the aftermarket liquidity in two periods: 7 and 30 days after the initial public offering.

IPO price formation and analyst coverage

IPO price formation and analyst coverage

End-word tones of stock names and stock price anomalies: Empirical evidence from China's IPO markets

Behavioral finance research has shown that in IPO market, both the stock name and the stock code can affect investors' judgement of the value of a stock, thus causing significant IPO price anomalies. However, no study has examined the possible impact of the end-word tones of the stock names on investors' cognitive biases and their consequences in the Chinese IPO market. The results of this paper show that, firstly, the average price-to-earnings (P/E) ratios of stocks with easy pronunciation of the end-word tones in their names (easy-pronunciation stocks) are consistently higher than those of stocks with difficult pronunciation (difficult-pronunciation stocks), both on the first day of the IPO and about six months after the IPO. Secondly, on the first day of the IPO, easy-pronunciation stocks have higher abnormal returns than those of difficult-pronunciation stocks, but in the following 12 months, the cumulative abnormal returns of easy-pronunciation stocks decreases more than those of the difficult-pronunciation stocks. Finally, the effects of end-word tone on both P/E ratios and abnormal returns of IPO stocks in China are generally significant through the first day of the IPO to the following 12 months, but these effects change from positive to negative about six months after the IPO day.