Long-run Performance Of Initial Public Offerings Research Articles

The long-run performance of SME IPOs in India: empirical evidence from Indian stock market

PurposeThe purpose of this paper is to study the pattern of long-run performance of small and medium enterprises (SMEs) initial public offerings (IPOs) and examine the firm- and issue-related determinants of long-run performance of SME IPOs in India.Design/methodology/approachThe 3 6, 9 and 12 months share returns of Indian SME IPOs is studied using event time methodologies, i.e. buy and hold returns, cumulative abnormal returns and wealth relatives on a sample of 375 SME IPOs issued during February 2012 to May 2018. Additionally, ordinary least square regression has been used to investigate the determinants of long-run performance of SME IPOs on a reduced sample of 104 because of non-availability of price observations.FindingsThe findings reveal that Indian SME IPOs exhibit long-run overperformance contradicting the international evidences of underperformance, and this overperformance is significantly evident using buy and hold abnormal return (BHAR). Furthermore, based on the divergence of opinion hypothesis, fads theory and windows of opportunity hypothesis, the results reveal that on one hand, issue size and oversubscription negatively affect BHAR, while on the other hand, auditor reputation, underwriter reputation, hot market, underpricing, inverse of issue price, profits prior to listing positively affect long-run performance. However, firm age, firm size, debt equity ratio, volatility and long-run performance computed through BHAR lacks significant relationship.Research limitations/implicationsThe study relied on event time methodology of measuring aftermarket performance of one year because of the limited availability of price offerings. Hence, the study could be extended to analyze aftermarket returns over a period of three to five years to enable reaching the vivid conclusions. Calendar time methodology may also be used to compute abnormal returns.Practical implicationsThe results based on the study provides an implication to the investors by providing them an opportunity to bank higher long-run returns by engaging in active and timely trading strategies. Nevertheless, the results also show that investors should be cautioned while taking investment decisions.Originality/valueThe study contributes to rising body of international literature by analyzing the larger and recent sample of IPOs issued from 2012 to 2018 listed on SME exchange.

Can a Company’s Pre-IPO return on Assets (ROA), Return on Equity (ROA) and Initial Returns Predict Post-IPO Performance?

Initial Public Offerings (IPOs), the offering by companies of stock to the public for the first time, have long been characterised by two anomalous phenomena: an abnormal increase in share price on the first day of trading and a long-run decline in performance. Some researchershave suggested that long run performance of IPOs could be a function of the firm’s pre-IPO performance and initial returns. However, few studies have looked at these relationships in listed companies in Kenya. The objectives of this study were to determine the relationship between pre-IPO and post-IPO performances of companies listed on NSE, and assess the relationship between initial return and post-IPO performance of the companies. An explanatory survey design was adopted for the study. The target population of the study was 12 companies that had sold shares to the public between January 1996 and December 2013 and 54 other companies on the Stock Exchange, which were used to compute benchmarks (NSE-20 share index), against which the companies that had issued IPOs in the study were compared. The entire population (census) of the companies was used in the study. The study analysed company data (prospectuses and annual statements). In addition, daily stock share prices, volumes and NSE indices were collected from the NSE. The study found an average under-pricing of 55.36% and a median under-pricing of 24.71%. The average CAR, M= -0.98, SD=2.08, t(11) = -1.97, p<.05, and ROE, M= -10.07, SD=24.0, z= -1.96, p<.05, were significantly less in three years after an offering than in three before the offering, suggesting a decline in company performance after the offering. Both pre-IPO ROA and ROE could not predict post-IPO ROA and ROE, respectively. Moderate and statistically significant negative relationships were found between initial return and both ROA and ROE differentials, showing that companies with larger abnormal returns had poor long run performance. The study recommends that investors looking for investment in IPOs must study more firm’s statistics, not just ROA and ROE, before choosing to buy stock.

The Post-IPO Performance in the PRC

The long-run underperformance of IPOs (Initial Public Offerings) is one of the three &amp;ldquo;New Issues Puzzles&amp;rdquo; It indicates that if investors buy IPOs and hold for more than three years they will get negative abnormal returns It is necessary to examine the long-run performance of IPOs in China because it benefits how to enhance the efficiency of IPOs market and provides insight of emerging market This paper empirically examines the performance for three years after listing of 76 Shanghai Stock Exchange IPOs form 2002 to 2007, the matched company as the benchmark, the matched company comes from the same industry and similar circulated stock value with listed companies. First it computes the long-run excess returns of the IPOs with types of models. Then it examines whether the underperformance has statistical significance or not. After that, it analyzes the relationship between the variables and long-run performance of IPOs.&#x0D; &#x0D; Research documents that the IPOs significantly underperformed the matched companies. The cumulative abnormal returns over the three years listing are -0.18446. The buy and hold abnormal returns over three years after listing are-0.01284. At last, using the cross-sectional analysis to analyze the factors that affect the long-run performance of IPOs, the regression result shows that EPS is the basic reason; the intrinsic value, issue characteristics and the investors&amp;rsquo; sentiment (overoptimistic) are the main reason for long-run performance of IPOs.&#x0D; &#x0D; This paper analyzes the reason of this phenomenon, then from the reason puts forward relevant suggestions: firstly, improving the information disclosure; secondly, evaluating the rational investors; thirdly, strengthening market supervision.

The Short and Long-Run Performance of Sharia-Compliant Initial Public Offerings (IPOs) in the Emerging Market: Evidence from the Saudi Arabia Share Market

This study examines the short- and long-run share performance of 40 Sharia-compliant IPO companies listed on the Saudi Arabia Stock Exchange (Tadawul) from 1 st January 2000 to 31 st August 2017. This study employs both market-adjusted initial returns and buy-and-hold abnormal return to measure the share performance of IPOs. First, the analysis shows that Sharia-compliant IPOs are underpricing with abnormal initial returns of 79.23%. Second, the results suggest that investors could earn positive and significant market-adjusted BHAR of 14.67% if they held IPO shares over the eighteen-month period following the listing date when EWI is used as a market benchmark. This study also finds that IPO companies outperformed the VWI although the results are insignificant. The findings on the long-run overperformance contribute to the IPO literature on long-run performance of Sharia-compliant IPOs. The present study would benefit foreign investors and market regulators who are trying to understand the market behaviour in an emerging market.

Long Run Performance of Initial Public Offerings (IPOs) in Pakistan

This study is aimed to analyze long run performance of initial public offerings (IPOs) in Pakistan by taking the sample of 15 firms for the period of 2006 to 2011. We took secondary data for our research from KSE, SBP, and Brecorder. Stock returns of IPO firms are considered as dependent variables and firm size, firm age, profitability and leverage ratios are considered as explanatory variables for the long run performance of IPOs. Previous literature on IPOs indicates that IPOs underperform in the long run. Firm’s size and profitability have some significant positive correlation with the IPOs long run performance. All the findings of this research paper depend upon the background of the different industry sectors, the perspective of the study and sample distribution. And the Leverage ratio and Age of the firms are negatively correlated with the long run performance of the IPOs.

Market Performance of Sponsor-Backed Initial Public Offerings: An Empirical Analysis of the German Market

&lt;p&gt;&lt;em&gt;This paper investigates the overall market performance of Initial Public Offerings (IPOs) in Germany, by analyzing the short and long run performance of IPOs, utilizing the data from 2000-2013. Furthermore the study aims to distinguish and compare the performance of sponsor backed IPOs to non-sponsor backed IPOs, by placing a special focus on the value creating abilities of financial sponsors. The examined data set consists of 286 IPOs out of which 46 can be considered as IPOs which were backed by financial sponsor. The study suggests that, on average, IPOs significantly underperform their benchmarks. Furthermore, the evidence implies significant differences across the IPO groups with regard to performance and operational indicators. The multivariate regression shows that in the long run, private equity firms outperform their counterparts, signified by greater buy-and hold abnormal returns respectively recorded within the three-year period after the IPO. &lt;/em&gt;&lt;/p&gt;

Determinants of Long-run Performance of Initial Public Offerings: Evidence from India

The article examines the long-run performance of 377 initial public offerings (IPOs) made by Indian companies during the period 2005–2015. The objectives of the article are to analyze whether Indian IPOs underperform or outperform the broad market in the long run and to identify the key determinants of their long-run performance. The results show that the Indian IPOs outperform the broad market initially followed by significant underperformance in the long run. The IPOs listed on the main board during 2005–2015 yielded average initial excess returns (IERs) of about 22 per cent. However, 37 per cent of the IPOs provided negative IERs. The IPOs underperformed the broad market generating –57.33 per cent buy-and-hold abnormal return (BHAR) over 36 months after listing. Only 38 out of 377 IPOs (10 per cent) outperformed the benchmark index over a 36-month holding period. The important issue characteristics that influence the long-run performance of IPOs in India are the type of issuer (government-owned or private), lead manager prestige (LMP), promoter holding and the issue size.

Optimistic Investors and Long-Run Performance of IPOs: Testing the Theory of Heterogeneous Beliefs and Short-Sale Constraints

This study tests speculative bubble theory, which assumes investors’ heterogeneous beliefs and short-sale constraints, as a potential explanation for the long-run underperformance of initial public offerings (IPOs). The prediction of speculative bubble theory is difficult to test directly because of the unobservability of the distribution of investors' opinions. This study thus focuses on Japanese auction-method IPOs and estimates the distribution of investors' beliefs. It finds that both the level of optimism and the divergence of investors' opinions cause the overvaluation of the first-day market price, but that the former has more explanatory power for post-IPO underperformance.

Long-Run Performance of IPO Market in India

In this paper, we examine the Long-run performance of initial public offerings (IPOs). The data has been taken for 31 IPOs from the year 2000 to 2003. We have used Logistic Regression Model through SPSS Version 16 to test for the relationship between long run performance of IPOs and short run performance variables of the company. The analysis shows that the long run variables have no relationship with short-run variables or else have negative relationship. With some of the variables it has positive relationship. It shows anomaly. The companies having listing gain have negative current ratio, debt equity ratio and return on net worth and the companies having short-run gain has negative current ratio and debt equity ratio. The theory supports the view that for IPO markets to be efficient there should be low listing gain, moderate short-run gain and high long-run gain. Only then there will be long term development of IPO market. But the actual situation is opposite. The companies have listing gain, short-run gain but they are not able to give long run gain.

Analyzing Long-run Performance of Select Initial Public Offerings Using Monthly Returns: Evidence from India

The anomalies in respect to initial public offering (IPO) performance in literature have stimulated multitude of research works in explaining critical issues, such as under-pricing during short-run and underperformance phenomena in the long run as is observed globally. This study endeavours to look into the long-run performance of select Indian IPOs using monthly returns following event study methodologies. Besides parametric tests, it has also applied wealth relative as a measure of performance of those IPOs. The article documents positive long-run average abnormal returns for Indian IPOs, unlike other countries. However, statistically we fail to reject the null hypothesis of zero abnormal return and therefore conclude existence of no significant long-run underperformance or over-performance in the Indian IPO stocks. In exploring the possible factors which may have bearing in determining the longrun performance of the IPOs, it is observed that book-to-market value (BMV) ratio, age of the IPO firm and aftermarket corporate measures, such as bonus issue and stock split, have significant predictive power in explaining the long-run performance.

How the unremunerated reserve requirement by the Bank of Thailand affects IPO underpricing and the long-run performance of IPOs

Purpose The purpose of this paper is to investigate the characteristics of the Initial Public Offering (IPO) market, IPO underpricing and the long-run performance of IPOs and to find out the ex ante difference in the market structure between the pre-, during and post-periods of the Unremunerated Reserve Requirement (URR) at the 30 per cent rate. Design/methodology/approach The sample is a total of 245 IPOs listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (mai), during the period 2001-2012. The explanatory variables consist of the age of the firm, the offer size, the time-lag between the IPO date and the first trading date, the proportion of shares owned by the government and the IPO subscription rates by foreign and institutional investors. In further analysis, the authors adopt a two-stage least squares approach to derive unbiased estimates of the relationship between government ownership, IPO underpricing and firm quality. Findings We find the ex ante uncertainty and earning management partially explain the IPO underpricing phenomenon in the Thai IPO market. Our findings support the impresario hypothesis shown by the negative relation between underpricing and the three-year after-market. In addition, the 30 per cent URR imposition by the Thai Central Bank promptly reduced the number of IPO issues and the proportion of foreigners and institutions subscribing to IPOs. However, it was able to enhance the degrees of IPO underpricing and the long-run performance of IPOs in Thailand. Practical implications The results presented in this paper may be, therefore, useful for investors, security analysts, companies and regulators in many other emerging markets beyond Thailand. Given the results from the over-performance of IPOs in the post-URR period, investors may do better holding Thai IPOs for a long period with a likelihood of gaining a higher return. Originality/value This paper contributes to the literature concerning IPOs – in that we have considered two stock markets, namely, SET and mai. Furthermore, unique data such as the government ownership and proportion of IPOs subscribed by foreign and institutional investors are taken into consideration in our research model. To the best of our knowledge, for the first time in the Thai IPO market, the effect of the 30 per cent URR on IPO underpricing and the performance of IPOs in the long-run has been closely examined.

After Market Pricing Performance of Initial Public Offerings (IPOs)

Detailed review of literature in Indian and foreign context have empirically documented IPOs anomaly. This paper attempts to study immediate and short- to long-run performance of IPOs in India for the period January 2004 to December 2013. The present paper evaluates IPOs’ performance from initial day to long-term period based on average abnormal return, cumulative abnormal return, buy and hold abnormal return, wealth relative, and market adjusted abnormal return. The paper concludes that IPOs are a good bet to rely upon from immediate to short run and at most till medium term.

The Long-run Performance of Chinese Private Firm IPOs

This paper examines the three-year long run performance of Initial Public Offerings (IPOs) in the Chinese stock markets from 2002 to 2012. We find that private firm IPO long-term returns are significantly higher than those of non-private firms, measured by both cumulative abnormal returns (CARs) and buy-and-hold abnormal returns (BHARs). Furthermore, the long-term performance of IPOs in the Chinese stock markets seems to have a significant upward tendency after the Non-tradable share (NTS) reform launched in 2005. However, private firm IPO long-run outperformance has experienced a diminishing increase after the NTS reform. This result indicates that state-owned enterprises turn to be more market-oriented after the NTS reform.

Why are stock exchange IPOs so underpriced and yet outperform in the long run?

We investigate the level of underpricing and the long-term stock market performance of financial exchange initial public offerings (IPOs) and find that, despite being more underpriced, the financial exchange IPOs significantly outperform the market indexes and a control sample of regular IPOs. Thus, contrary to the findings in prior studies, we find that stock exchange IPO underpricing is positively related to the firm's long-run stock returns. We argue, among others, that the lack of managerial ownership of shares in the stock exchange firms creates a situation where management is not constrained to significantly underprice their initial issues to signal their firms’ prospects, because they do not directly bear the cost of leaving too much money on the table. Interestingly, both underpricing and long-run returns of stock exchange IPOs are related to proxies of the signaling hypothesis. On the basis of additional tests involving the stock exchange IPOs and a sub-sample of regular IPOs that also outperformed the market in the long run, we are able to rule out the quasi-monopoly hypothesis as a possible explanation for the strong long-run performance of stock exchange IPOs.

Examining the Performance of IPOs

This paper examines the performance of 648 initial public offerings (IPOs) listed on the Bombay Stock Exchange (BSE) from June 1992 to March 2002 over a five-year period. Voluminous research across the world suggests that IPOs unanimously witness very high returns in the short run; as opposed to it, the long-run performance of IPOs does not observe any ubiquitous pattern and this paper is an attempt to draw conclusions about the performance of IPOs in India. In order to get robust conclusions on IPO performance, the patterns of IPO performance have been analyzed for 60 months subsequent to listing. Furthermore, the study attempts to find out the factors that determine the performance of Indian IPOs.

Long-run performance of IPOs and the role of financial analysts: some French evidence

This paper examines the long-run performance of French initial public offerings (IPOs) carried out between 1991 and 2005. Using various methodologies, we found that IPOs in our sample performed poorly relative to the comparison portfolios over the 1991–2005 horizon in contrast to that reported by prior studies of the French market. This abnormal long-run performance is more severe for orphan IPOs (those without financial analysts’ recommendations) than for non-orphan IPOs the first year following the offerings (a statistically significant difference). In contrast to the widely held belief, this evidence suggests that analyst coverage is indeed not important to the issuing firm. Investors pay more attention to non-orphan IPOs when they are not book built, venture capital backed, underwritten by a large syndicate and less underpriced. Over the 1991–2005 period, an analyst's affiliation does not appear to matter. This result is inconsistent with the conflict of interest hypothesis. During the first year of issuance, analysts’ recommendations are associated with the success of a newly public firm. However, once we extend the horizon to 3 or 5 years after the issuance, we can find that analysts’ recommendations are not significantly related to the long-run performance of IPOs.

The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs

This study examines initial returns and subsequent long-run performance of Chinese initial public offerings (IPOs) over the period 2001–2008, with specific emphasis on the impact of underwriter reputation. We develop three proxies for underwriter reputation based on either the registered capital of each underwriter, the relative market share, or the number of all IPOs managed by each underwriter. We find little influence of underwriter reputation on the level of IPO underpricing, but a significantly positive relationship between underwriter reputation and the level of IPO long-run performance, which is meaningful for both academics and professionals. Although the significantly negative three-year market-adjusted buy-and-hold abnormal return suggests a potential loss to investors who hold Chinese IPOs in the long run, investing in IPOs managed by more prestigious underwriters helps mitigate the loss. The results are robust to various checks that control for the problem of endogeneity or correct for cross-sectional dependence of observations in the buy-and-hold abnormal returns.

After Market Pricing Performance of Initial Public Offerings (IPOs): Indian IPO Market 2002–2006

This paper is motivated by the apparent belief that IPOs are underpriced on the initial listing day and thereafter underperforms compared to the market benchmark. While evaluation of the listing day performance seems straightforward on surface, it actually invokes several complications for the subsequent performance measurement. This paper focuses on the evaluation of price performance of IPOs up to a period of 36 months including the listing day. It also examines the usefulness of IPO characteristics at the time of issue to seek an explanation for the post-issue price performance. The paper presents fresh evidence on IPO performance, i.e., short-run underpricing and long-run underperformance for 92 Indian IPOs issued during the period 2002–2006. It is reported that on an average the Indian IPOs are underpriced to the tune of 46.55 per cent on the listing day (listing day return vis-à-vis issue price) compared to the market index. Another contribution of this paper is the evaluation of the long-run post-issue price performance of Indian IPOs. The long-run performance of IPOs up to a period of 36 months are measured by using the two most promising evaluation techniques, i.e., wealth relative (WR) and buy-and-hold abnormal rate of return (BHAR), both being adjusted with market index, CNX-Nifty. Further, the results evidence that the underperformance is most pronounced during the initial year of trading, i.e., up to 12 months from the listing date followed by over�performance. To get possible explanations for long-run underperformance for Indian IPOs, factors like underpricing rate (listing day return), offer size, leverage at IPO date, ex-ante uncertainty, timing of issue, age of IPO firm, rate of subscription, promoter groups retention, and price-to-book value (as proxy for growth) are considered. Evidence is found, that initial day return, offer size, leverage at IPO date, ex-ante uncertainty, and timing of issue are statistically significant in influencing underperformance. However, there is no evidence favourable to the age of the IPO firm, rate of subscription, promoter group's retention, and price-to-book value impact on the long-run underperformance. The empirical results suggest that the investors who are investing in IPOs through direct subscription are earning a positive market-adjusted return throughout the period of study. But investors who have bought shares on the IPO listing day are earning negative returns up to 12 months from the listing date and expect to earn positive market-adjusted return thereafter. For future research, we suggest the extension of this analysis for additional explanatory variables including issue fundamental characteristics of IPO firms. The scope of the research study could even be improved by extending the time period of study prior to 2002.

Market performance of US-listed Shipping IPOs

This article empirically analyses the initial and aftermarket returns for US-listed Shipping initial public offerings (IPOs). Our main objective is to fulfil the great need for the US Shipping evidence on long-run performance of IPOs. We aim to test the extent to which signalling models explain the reasons for the issuance of IPOs using the long-term price performance approach. We concentrate on a sample of 61 IPOs listed during the period 1987–2007 in four major US Stock Exchanges, computing buy-and-hold abnormal returns (BHARs) and cumulative average returns (CARs). The results show that US-listed Shipping IPOs are underpriced on initial trading day on average by only 4.44 per cent, a figure that indicates an outstanding level of maturity for the shipping sector. In the long run, Shipping IPOs listed in the United States offer 1- , 2- and 3-year holding period returns (BHAR) of 7.50, 7.73 and 3.26 per cent, respectively. The conclusion suggested by those results is that investing in the United States is not a guaranteed investment for long-term Shipping IPOs-oriented investors.

The calendar anomalies in IPO returns: Evidence from Turkey

Bu çalışmanın amacı Türkiye’de 1990-2005 döneminde gerçekleşen ilk halka arzların kısa ve uzun dönem getirileri üzerinde takvim anomalileri etkisini test etmektir. Çalışma sonucunda Türkiye’de ilk halka arz getirileri üzerinde; haftanın günü(the day of the week effect), yılın ayı(the month of the year effect), ayın haftası(the week of the month effect), ayın belirli haftasının günü(the weekday of the month effect), yılın ilk ya da ikinci yarısı(the semi year effect), ayın ilk ya da ikinci yarısı(the semi month effect) ve ay dönüşü(turn of the month effect) takvim anomalilerinin etkili olduğuna yönelik kanıtlar bulunmuştur. Ayrıca bu çalışmanın sonucunda Türkiye için ilk halka arzların kısa dönemde düşük fiyatlandığı, uzun dönemde ise düşük performans sergilediği tespit edilmiştir.