Performance Of Initial Public Offerings Research Articles

The long‐run performance of initial public offerings in Germany

PurposeThe objective of this study is to investigate the long‐run performance of initial public offerings (IPOs) in Germany for the period from 1977 to 1995. The paper studies why some IPO firms have substantial positive and others have substantial negative long‐run buy‐and‐hold abnormal returns.Design/methodology/approachThe paper approaches this problem by differentiating the abnormal return patterns by the following criteria: benchmark, year of going public, security design, money raised, market value and magnitude of underpricing.FindingsThe empirical findings suggest that the subsequent financing activity in the equity market is the most important factor for determining the future performance of an IPO. This variable separates the out‐performers from the under‐performers. Thus, only successful firms have the opportunity to raise additional funds in the equity market through a seasoned equity offering.Research limitations/implicationsFuture research should concentrate on investigating whether the introduction of new stock market segments in Germany has changed the long‐run performance of IPOs.Practical implicationsThe results suggest that firms with a superior performance have the opportunity to raise additional equity whereas the poor performers do not get a second chance to sell equity to the public. This means that firms have to earn at least their cost of capital in order to receive additional funding.Originality/valueCompared to other research, this study explains the significant difference in long‐run performance between two groups of IPOs based on the future financing decision. This finding offers new insights to both academics and practitioners alike.

Performance and distress indicators of new public companies

This study investigates after-market returns and incidence of bankruptcies and distress relative to performance and distress indicators for new public companies. The study includes firms that had an initial public offering (IPO) during the period 1995–2002. Performance measurements include after-market returns, number of bankruptcies, and number of ‘distressed’ firms. I identify firms as being ‘distressed’ if the firm's stock price loses 95 per cent of its market value within two years from the first month-end price after going public. I further investigate the significance of ‘ex ante’ (pre-event) financial distress indicators present at the time companies go public and other indicators to predict after-market performance of IPO firms. I use the O-ratio, a measure of bankruptcy risk, from Ohlson's (1980) model and investigate its ability to predict bankruptcy and stock performance for these new companies. The study also examines the impact of market-to-book ratio and underwriter quality on after-market performance of IPOs. The findings of this study may be useful to those who hold new public companies in their asset portfolios. The study might be particularly interesting to institutional investors, venture capitalists, and individual investors who regularly follow the performance of new IPOs. The results of the study indicate that using Ohlson's (1980) O-ratio, the market-to-book ratio, and underwriter quality as selection criteria may result in a portfolio of IPOs which performs above average.

Integrando información de carácter temporal y transversal en la predicción del rendimiento inicial de las salidas a bolsa

This article discusses the short-term performance of initial public offerings using an approach that considers both cross-sectional and longitudinal perspectives. We present a way to combine the inertia in the IPO market and variables related to the offering structure to predict the initial return of specific companies. The combination of both results in a substantial increase in the explanatory power of the regression models used to asses the results.

Long-run performance of initial public offerings in the German stock market: The family business experience 1977 to 1998

This paper investigates the long-run performance of initial public offerings of 174 family firms floated in Germany between 1977 and 1998. Family businesses typically come closest to the ideal of non- separation of ownership from control. The fundamental change in ownership structure induced by the flotation represents a change in the governance of the firm as for the first time dispersed outsiders buy equity capital. An examination of the stock price performance allows drawing conclusions to explain the impact of governance changes on firm value. A prediction of stock price performance spans two theories: Advantages of modern corporations where management and ownership are separated are cut short by the so-called principal-agent problem. Managers – the agents – could take actions against the interest of shareholders – the principals. Agency problems in closely-held family firms should be less predominant. On the other hand, the rent-protection theory predicts that family owners have incentives to skim private benefits at the expense of firm performance. Depending on the extent of these two effects, family-owned firms should out-, respectively underperform the market. The empirical evidence seems to support the private benefit hypothesis: 3 years after the listing the market-adjusted return was on average –25.31% compared to a broad index. The underperformance increased to –53.50% after 60 months. Even when excluding potential new economy and Neuer Markt biases, the underperformance is a statistically significant –10.50% and –50.13%, respectively.

Ipo Behavior in Gcc Countries: Goody-Two Shoes or Bad-to-The-Bone?

This paper documents the phenomenon of underpricing initial public offerings (IPOs) for 47 firms that went public between 2001 and 2006 in the equity markets of the six Gulf Cooperation Council (GCC) countries. The average initial abnormal returns of 290 percent exceed those found in the existing literature for both developed and emerging markets IPOs. Although the IPOs' returns over the one-year horizon beat the market index benchmark, they present negative abnormal returns once initial returns are excluded, which is consistent with findings in other industrial and emerging markets. The empirical models reject the hypothesis that the IPOs' performance is driven by the common independent variables employed in the literature. On the contrary, in the case of the GCC, country- and industry-specific characteristics, in addition to the timing of the offers, play key roles in explaining the abnormal returns of IPOs. This paper's empirical findings support the hypothesis that investors initially tend to be over-optimistic about the performance of IPOs, but grow more pessimistic over time.

The Long-Run Performance of Initial Public Offerings: Comparison between Shari'Ah and Non Shari'Ah Based Firms

The Long-Run Performance of Initial Public Offerings: Comparison between Shari'Ah and Non Shari'Ah Based Firms

The Market Performance of Initial Public Offerings in the Istanbul Stock Exchange

This study examines the long-standing IPO puzzle in the Istanbul Stock Exchange (ISE) by using new factors affecting the performance of IPOs such as source of shares in the IPO (new issue or sale of large shareholders), allocation of shares and dispersion of investors (ownership of foreign investors, number of investors, and breadth), as well as existing factors such as market conditions (hot/cold), underwriters' reputation, and firm characteristics (issue and firm size, E/P, and B/M ratios). Our results differ from previous studies at least three ways. First, magnitude of underpricing is significantly lower, while underperformance is higher than other studies. Our strong evidence supports the existence of the underpricing by positive initial excess returns (5.94%) and the long-term underperformance up to three-year holding period (-84.5%) in the ISE. We explain this with heavy competition among investment banks to mandate the IPOs in a market, where the number of IPOs is very limited, which leads to overvaluation and so underperformance in the long run, while limiting abnormal initial returns. Second, underperformance starts much earlier than in other markets, and has even been known to commence at the end of first month following the IPO because of myopic behavior of investors, who mostly seek short-term returns in a very volatile and inflationary environment. Third, we show that underperformance of IPOs disappears for IPOs made in a cold market, and those made through the sale of large shareholders. Allocation of shares in an IPO and size also impact after-market performance of shares. The broader and the more even allocation of shares, the smaller both the long-run underperformance and the underpricing are. Finally, a temporary large and positive initial return experienced by firms issuing stock to the public for the first time turns out to be hazardous to the wealth of their shareholders in the long-run. However, the mystery of these phenomena requires further investigation by researchers in the future until a complete and satisfying explanation is found.

Initial Public Offerings, Subsequent Seasoned Equity Offerings, and Long-Run Performance: Evidence from IPOs in Germany

The objective of this study is to investigate the long-run performance of initial public offerings (IPO) in Germany for the period from 1977 to 1995. Of particular interest is to examine whether underpricing and the timing of subsequent seasoned equty offerings (SEO) may help to explain why some firms have substantial positive and others have substantial negative long-run abnormal holding period returns after going public. We find significant empirical evidence that firms that raised additional funds after an IPO through a seasoned equity offering outperformed the market. There is a significant difference in returns relative to the firms that had no subsequent equity offering. A comparison of seasoned equity offerings of IPOs and of established firms suggests that the information asymmetry is more pronounced for IPO firms.

Venture Capitalist Involvement and the Long-Run Performance of IPOs

The long-run underperformance of initial public offerings (IPOs) is a well documented anomaly. Recent research has shown that venture-backed IPOs marginally outperform non venture-backed IPOs and posits that venture capitalists (VCs) may add value through a variety of methods. We investigate the relation between the degree of involvement by VCs and the long-run performance of IPOs. We find a positive relationship between the proportion of monitoring directors (VC and independent directors) and long-run performance, evidence consistent with VCs shaping the board to increase monitoring. Further, it appears that VC-backed firms are able to reduce asymmetric information through attracting analysts and large shareholders thus improving long-run performance. Our results suggest that the underperformance of IPOs may be driven in part by those firms with none or low degrees of VC involvement. <b>TOPICS:</b>Private equity, portfolio construction, in portfolio management, performance measurement

The Long Run Share Price Performance of Malaysian Initial Public Offerings (IPOs)

Abstract: This paper investigates the long run share price performance of 454 Malaysian IPOs during the period 1990 to 2000. In contrast with developed markets, significant overperformance is found for equally‐weighted event time CARs and buy‐and‐hold returns using two market benchmarks, though not for value‐weighted returns or using a matched company benchmark. The significant abnormal performance also disappears under the calendar‐time approach using the Fama‐French (1993) three factor model. While the long run performance of Main and Second Board IPOs does not differ, the year of listing, issue proceeds and initial returns are found to be performance‐related.

The abnormal performance of UK utility privatisations

PurposeThis paper aims to re‐examine both the short‐ and long‐term performance of UK privatisations, with specific reference to the comparative performance of utility privatisations with non‐utility privatisations and private sector initial public offerings (IPOs).Design/methodology/approachThe paper uses conventional event study methodology to examine the short‐ and long‐run comparative performance of IPOs. The long‐run analysis also adopts a buy‐and‐hold methodological approach.FindingsThe results reveal that short‐term under‐pricing is significantly higher in privatisations than in private sector firms, and specifically with the utility firms, and thus supports the hypothesis that governments tend to underprice privatisation issues more due to concerns over reassuring investors regarding potential future intervention. The long‐term results show that privatisations not only consistently out‐perform the benchmark index, but they also tend to out‐perform private sector firms. However, as with the short‐term analysis the results for the non‐utility firms are far less conclusive.Research limitations/implicationsThe paper illustrates that IPO performance of privatisations not only can differ from private sector issues, but the type of firm and the aims and objectives of the issuing government are a major factor in both the short‐ and long‐run performance of the firm.Practical implicationsThe results highlight the practical issues involved in the relative pricing of privatisations dependent on the type of firm involved.Originality/valueThe explicit separation of privatisation issues by industry type and the comparison with a private sector sample split by both industry sector and by market size.

The long-run performance of initial public offerings: Stochastic dominance criteria

We examine the long-run performance of initial public offerings (IPOs) using the idea of stochastic dominance. The analysis is a first attempt using a non-event study methodology to evaluate long-horizon performance. We find that there is no first-order stochastic dominance relation between the IPO portfolio and the benchmark of a broad index or a portfolio including either small size or low book-to-market stocks. However, those benchmarks second-order stochastically dominate the IPO portfolio. When using a portfolio including both small size and low book-to-market stocks as benchmark, there is a clear dominance of the IPO portfolio over the benchmark for both orders. Our findings generally imply that the question of assessing portfolio performance between IPO firms and benchmark portfolios depends critically on the specific construction or the cumulative distribution function of the benchmark portfolios. The empirical results also potentially explain the extent of sample dependent results in the literature.

THE IMPACT OF FOUNDERS' OWNERSHIP, SOCIAL CAPITAL AND INVESTORS ON IPO STOCKMARKET PERFORMANCE.

The article discusses the importance and effects of founder ownership, social capital, and investors on the stockmarket performance of initial public offerings (IPOs). Many managers of future IPOs ...

Performance of Insurance Initial Public Offerings

This abstract was created post-production by the JFI Editorial Board. This paper finds an interesting pattern in returns from investing in initial public offerings of public equity for insurance companies with large market capitalization. This publicly known information that predicts future returns does not support the concept of market efficiency for the long-run performance of initial public offerings by insurance companies. This pattern may provide opportunities for active trading strategies in public equities of insurance companies to create superior returns for investors.

Initial performance of Greek IPOs, underwriter's reputation and oversubscription

PurposeThis paper aims to provide additional international evidence on the initial public offerings (IPOs) by examining the initial performance and two main determinants of short‐run underpricing of 169 IPOs listed on the Athens Stock Exchange (ASE) over the period 1997‐2002.Design/methodology/approachIn the first stage, the initial performance of the IPOs is measured by two calculated formulas: the raw returns and the excess or adjusted returns of the first, fifth and 21st day, respectively. In the second stage, a proxy is used to rank the underwriters' prestige along with the times of oversubscription, which are introduced as explanatory variables in the model.FindingsThe results of the analysis on the initial performance of the IPOs provide evidence of significant underpricing. Furthermore, the cross‐sectional analysis on the determinants of the IPOs shows that both the underwriters' prestige and the times of oversubscription significantly affect the underpricing level of the IPOs. Research limitations/implications – To understand the Greek IPO market with further depth, future studies could shed light on the other hypotheses emerging from the finance literature to explain the underpricing phenomenon.Practical implicationsThis paper helps investors and issuers to understand the role of an underwriter's reputation into the Greek going public process and the underpricing phenomenon and supports that the oversubscription is a pure signal to the investors that the shares are underpriced. Originality/value – This paper presents further evidence on the underpricing of the Greek IPOs, while extending previous relative studies by providing an explanation of this phenomenon over the most important and “hot” period for the Greek emerging stock market since its establishment, in terms of growth rates, acceleration of the going public process and volatility of market and stock returns.

Government Public Policy, Regulatory Intervention, and Their Impact on IPO Underpricing: The Case of Malaysian IPOs

This study examines the impact of government initial public offering (IPO) regulation intending on promoting public policy. The study examines the results of the implementation of a Malaysian government policy in 1976, which mandated that at least 30 percent of any new shares on an IPO offer be sold to the indigenous Bumiputera population or to mutual funds owned by them. The study examined the short‐run and long‐run underpricing of Malaysian IPOs and found that Malaysian IPOs are highly underpriced compared to IPOs in developing countries, creating a market microstructure effect. It also confirmed that the Malaysian government's regulatory intervention in spite of noble public policy intentions appeared to be the significant factor for the emergence of an average first‐day underpricing increase of Malaysian IPOs by 61 percent during the period after the regulatory economic policy was instituted. Furthermore, the study found that this high underpricing persists even for the long run, in contrast to the long‐run performance of IPOs in the United States.

The Valuation of Biotech IPOs

The valuation of initial public offerings (IPOs) is of considerable interest, given the important role these enterprises play in economic growth and investors' decisions. IPO valuation is particularly challenging due to the meager information available about new enterprises at offering dates. We extend the research on IPO valuation in various directions. First, we penetrate deep beyond the traditional proxies for value drivers, such as R&amp;D expenditures and cash flows, by defining and testing a host of specific product-related and competitive environment value drivers; second, we examine IPO valuations at three distinct phases of the going-public process; third, we employ both the direct valuation and relative valuation approaches; and fourth, we round up the analysis by examining the long-term performance of IPOs. Based on a sample of biotech IPOs from the 1990s, we document the overwhelming importance of product-related and intellectual property fundamentals, as well as the irrelevance of several key signals, such as venture capital backing and the quality of underwriters, which played prominent roles in previous research.

Long-Run IPO Performance Analysis of German and Spanish Family-Owned Businesses

This article examines the long-run stock market performance of German and Spanish initial public offerings (IPOs) between 1990 and 2000. We distinguish between family-and nonfamily-owned business IPOs by using the power subscale of the F-PEC. Buy-and-hold-abnormal returns (BHAR) are calculated in order to determine abnormal returns. Our results show that three years after going public, investors, on average, realized an abnormal return of − 32.8% for German and − 36.7% for Spanish IPOs. In both countries, nonfamily business IPOs perform insignificantly better. Regression analyses show that for the whole sample there is a positive company size effect. In family-owned businesses, strong family involvement has a positive impact on the long-run stock market performance, whereas the age of the firm has a negative influence.

The Opening, Short, Medium and Long Term Performance of Canadian Unit Trust Initial Public Offerings (IPOs)

Abstract: This paper investigates the initial pricing and performance of Canadian unit trust IPOs over a three‐ to four‐year period and then draws implications for the efficiency of the Canadian market. Overall, the results confirm the following: in the short term, unit trust IPOs are underpriced and outperform the Canadian market; in the medium term, IPOs are fairly priced and neither outperform nor underperform the Canadian market; and in the long term, IPOs are fairly priced but underperform the Canadian market. In addition, our results confirm that the size of underpricing is related to ex‐ante uncertainty about the value of the issue. Ex‐ante uncertainty proxies, namely total risk, exchange listing, relative bid‐ask spread, and relative volume of initial trade, all explain the size of underpricing. When the effects of these factors are controlled, the results confirm that Canadian unit trust IPOs are indeed overpriced in the short term but underpriced in the long term. We conclude that the Canadian unit trust IPO market appears to be inefficient in the short and long term, but over the medium, the market appears to be efficient.

Long-Run Performance of Initial Public Offerings: The Evidence for Switzerland

We estimate the underpricing and long-run performance of Swiss initial public offerings (I-POs) from 1983 to 2000. The average market adjusted initial return is 34.97%. To examine the long-run performance of Swiss IPOs, we compute buy-and-hold abnormal returns, skew-ness-adjusted wealth ratios, and cumulative abnormal returns using 120 months of secondary market returns. In contrast to previous findings for the U.S. and Germany, we do not find strong evidence for a distinct IPO effect. We attribute long-run underperformance to the fact that IPO firms tend to be small firms. It virtually vanishes when we use a small capitalization index as a benchmark. In spite of distinct economic implications and statistical properties, our basic results are similar for all performance measures applied.