Performance Of Initial Public Offerings Research Articles

A COMPARISON OF UNDERWRITER REPUTATION MEASUREMENT METHODS IN EXPLAINING IPO STOCK PERFORMANCE

This study objective compares the underwriter reputation, measured by a different method, in explaining Initial Public Offering (IPO) performance. The reputation is measured based on underwriter IPO frequency and deal value. The underwriter's reputation is then ranked and categorized into quartiles. We use cross-section regression methods to test the effect of different underwriter reputation measurement methods on IPO performance. The dependent variable is short-term and long-term IPO performance. The independent variable is four underwriter reputation categories represented by three-level dummy variables. We found that only underwriter reputation measured by IPO frequency can explain IPO performance. The findings suggest IPO frequency help underwriter understand the market condition and value IPO more accurately. Firms that want to reduce the cost of IPO underpricing should choose underwriters with a higher IPO frequency.

Impact of Firm Characteristics on IPO’s Short Run Performance: Evidence from Pakistan

In present day world, the concept of initial public offering (IPO's) has got much significance since its execution altogether influence the success of the companies. The current study aims at conducting a nonsystematic review of literatures on the concept of short runs performance of initial public offering in Pakistan. In this regard, we studied the IPO’s of 77 companies listed at Pakistan Stock Exchange (PSX) from the period of 2000-2015. The finding shows a positive and significance relationship between size of the firm and underwriter reputation while the age of the firm and risk shows negative relationship with the dependent variable MAAR. The performance of initial public offerings has significant effect on success or failure of a company. In this way, the companies in modern corporate world can ensure their success through effective utilization of initial public offerings.

The pricing and performance of IPOs in China’s poor counties

In the context of China’s drive to alleviate poverty, we focus on the initial public offering (IPO) firms located in China’s poor counties and investigate their IPO pricing and post-IPO performance. Contrary to the findings reported for the U.S., we find that the problem of information asymmetry between Chinese firms located in rural areas and their investors is so severe that these IPO firms are associated with significantly higher underpricing. This effect is more pronounced for firms located in rural areas with poor traffic systems. We do not find significant market performance differences between rural and urban firms after their IPOs, but the operating performance of rural firms improves in the short term. Our additional analyses indicate that rural IPO firms have significantly lower investor attention and higher agency costs than urban firms. Overall, we enrich the literature on IPO pricing and the economic effects of geographic location.

Corporate ownership and political connections: Evidence from post-IPO long term performance in China

This paper constructs a practical framework to illuminate how political connections influence the material performance of initial public offerings (IPOs) for Chinese firms. An important dimension of the paper is to decompose the effects of political connections into three types: (i) policy burdens, (ii) investor protection, and (iii) government patronage, ascribed to the grabbing hand, the invisible hand, and the helping hand, respectively. We find that the positive effect of political connections on the long-term performance of family-controlled firms, is attributed to investor protection and government patronage. The lack of significant effect of political connections on state-controlled firms is due to the offsetting of policy burdens and government patronage. We also find political connections to have a significantly positive effect on IPO initial returns for state-controlled firms, but just a moderate effect for family-controlled firms. This study offers deep insight to policy makers into the effect of political connections on IPO long-term performance.

The impact of media sentiments on IPO underpricing

PurposeIn initial public offerings (IPOs), the media plays a pivotal role by disseminating the information to the investors who generally lack the expertise to understand the information through the prospectus. Thus, media coverage can impact the investment decision of the investors and the IPO performance. Media typically covers the IPO before listing, suggesting that it may play an important role in explaining the opening price rather than the closing price on the day of listing. Therefore, this study aims to disaggregate the traditional IPO underpricing into three categories: voluntary, pre-market and post-market and provides a comparative analysis of the media sentiments impact on the traditional and disaggregated IPO underpricing. The authors’ disaggregated IPO underpricing analysis will facilitate the investors in making an effective investment strategy based on media sentiments.Design/methodology/approachThe study deploys sentiment analysis using bags of n (2) grams approach to gauge the sentiments on 2,891 media articles and uses “robust-regression” technique to analyze them on a sample of 222 Indian IPOs during 2009–2018.FindingsThe study reports that the sentiment score is positively related to the traditional underpricing; the sentiment score is positively associated with the pre-market underpricing and does not have any significant relationship with the post-market underpricing; the number of media articles does not play a significant role in explaining the IPO underpricing. The findings highlight the presence of a semi-strong form of efficiency in the Indian IPO market.Originality/valueExisting literature focuses that the role of media on IPO performance is based on the developed countries. IPO laws differ based on the countries. For instance, in India, investors can check the demand by the other categories of investors on a real-time basis. Thus, it is interesting to study whether, with such a high level of transparency, media can explain IPO performance in the Indian market. Media generally covers IPO before listing; therefore, the present study disaggregates the IPO underpricing to evaluate the role of media on the primary and secondary market separately. It will help the investors to decide when to enter and exit the market.

Prior banking relationships and long-term IPO performance

Using a unique dataset of loan information disclosed in Chinese firms' initial public offering (IPO) prospectuses, we investigate how prior banking relationships affect the long-term performance of IPOs. The findings suggest that when an IPO firm has a pre-IPO relationship with a bank that includes larger loans or greater loan spreads, its long-term performance is higher. Specifically, we find a 1% increase in the average loan-to-asset ratio (average loan spread) will result in a 1.32% (10.22%) increase in the three-year post-IPO stock return. Additional analysis suggests that firms with higher average loan-to-asset ratios and loan spreads have, on average, higher combined three-years post-IPO asset growth, debt growth, sales growth, and net income growth. Collectively, we show that a bank's knowledge of loan information as a result of a banking relationship that existed prior to the IPO has a material impact on the performance of new firms, which is consistent with the interpretation that bank monitoring has a positive role in firm value.

Moderating Effects of Founders’ Role on the Influence of Internationalization on IPO Performance of Listed Companies in Thailand

Previous research suggests that internationalization affects initial public offering (IPO) performance in the short term, but it less is known about the founders’ role in the relationship between internationalization and IPO performance. The objectives of this study were to investigate moderating effects of the founders’ role on the impact of internationalization on IPO performance of newly listed companies. The samples included 80 international firms listed in Thailand stock markets from 2013 to 2020. Multiple regression analysis was employed to test the effects of internationalization on IPO performance, and the PROCESS macro was applied to test the moderating effects. Founder CEO as a proxy of a founders’ role was a moderator variable where internationalization was a predictor variable and IPO underpricing, a proxy of IPO performance, was the outcome variable. The results revealed that internationalization demonstrated no statistically significant effect on IPO underpricing. A non-founder CEO had a moderating effect on the influence of internationalization on IPO underpricing, whereas a founder CEO revealed no moderating effect. Specifically, internationalization had a negative effect on IPO underpricing once an international firm had a non-founder CEO. A decrease in IPO underpricing of international firm is clearly explained by the results of this study.

Impact of Quality of Involvement of VC/PE in IPO Firms: Evidence from India

This article draws its primary motivation from the steady rise in the participation and involvement of venture capital/private equity (VC/PE) funds in the Indian IPO market over the last couple of decades. The study explores the involvement quality of the VC/PE managers and its impact on the long-run equity and operating performance of Indian firms issuing securities through initial public offerings (IPOs). Using data for 173 IPOs backed by VC/PE funding (out of a total of 625 IPOs) from 2000 to 2016, the authors show that post-issue, both equity market performance and operating performance of these VC/PE-backed IPOs are unimpressive in general. The information asymmetry, mispricing, and “timing the market” do not seem to be reasons for such long-term underperformance. The authors argue that it may be a case of too much money chasing too few winners in the Indian VC/PE-backed IPO market. The study utilizes a unique, hand-collected data set (from IPO prospectuses) on VC/PE firms’ involvement quality. Findings indicate that the duration and the size of the stake that the VC/PE firms hold in the pre-issue period positively affect the post-issue performance of IPOs. These findings lend support to the previously theorized “monitoring” and “certification” role of VC/PE firms. <b>Key Findings</b> ▪ Both long-term market and operating performance of VC/PE-backed IPOs in India from 2000 to 2016 were unimpressive. ▪ The quality of VC/PE involvement has some impact on the post-IPO performance of investee firms. ▪ The VC/PE-backed IPOs are not engaged in timing (hot and cold periods) the market.

Do anchor investors affect long run performance? Evidence from Indian IPO markets

PurposeAnchor investor (AI) regulation was introduced in 2009 by the Indian market regulator Securities and Exchange Board of India to facilitate the price discovery process during the book-building mechanism. This study aims to examine the aftermarket pricing performance of initial public offering (IPO) firms over the long-run period of up to 36 months after the listing date in the anchor investor regime.Design/methodology/approachThe post-issue performance of 129 Indian IPOs issued from 2009 to 2014 is studied by using buy and hold abnormal returns, cumulative abnormal returns and wealth relatives approaches. This study presents the aftermarket performance indicators of Indian IPOs along with the comparative analysis between anchor-backed and non-anchor-backed IPO categories. Using multiple regression analysis, this study identifies the firm-level variables and issue characteristics that can explain long-term IPO performance.FindingsThis study reports that Indian IPOs continue to underperform in the long run in the anchor regulation era as well. However, anchor-backed IPOs are reported to underperform lesser than the IPOs not backed by anchor investment. Additionally, this study documents that the variables, i.e. offer size, grade, post-issue promoter holding and IPOs issued during hot IPO periods, are significant in explaining the 36-month aftermarket performance.Originality/valueThis study investigates the long-run aftermarket pricing performance of anchor affiliated IPOs in the Indian market context. Thus, it contributes to the limited primary markets’ research from emerging economies. Further, the results provide fresh evidence reaffirming the credibility of AI as an institutional investor for attestation of quality of the issues.

Long-Run Price and Operating Performance of Initial Public Offerings in Borsa Istanbul

Long-Run Price and Operating Performance of Initial Public Offerings in Borsa Istanbul

Global Board Reforms and the Pricing of IPOs

AbstractWe document that global board reforms are associated with a significant reduction in the underpricing of initial public offerings (IPOs). 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.

Does ownership structure and market sentiment affect the performance of IPOs in India in short run? A dynamic panel data analysis

PurposeThis study aims to compare the short-run performance of construction and non-construction initial public offerings (IPOs) that are offered in India during 2006–2015. The study also attempts to investigate the impact of ownership structure (i.e. concentrated ownership in the hand of promoters and institutional ownership) and market sentiment on the performance of construction sector IPOs in short run.Design/methodology/approachA total of 281 IPOs were listed at National Stock Exchange, India, during the study period, and 44 of those were from construction sector. The short-run performance of these construction and non-construction IPOs was compared using two indicators, i.e. monthly stock return (SR) and excess return over market benchmark (MAR). To examine the effect of concentrated ownership in the hand of promoters, institutional ownership and market sentiment on IPO performance, systematic dynamic panel regression model was developed.FindingsThe IPOs of construction firms perform significantly better than the non-construction firms. The performance of construction IPOs is significantly driven by the lag effect. This suggests a significant informational inefficiency, which results in a delayed reaction by investors. The market sentiment has a positive influence on the performance of construction sector IPOs, whereas the institutional holding has a negative influence.Originality/valueTo the best of the author’s knowledge, this study is the first attempt to examine the performance of construction sector IPOs in short run. The study uses systematic dynamic panel data regression, which provides better and reliable estimates.

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

This study investigates the long-run pricing performance of 90 IPOs listed on the Karachi Stock Exchange from 1995 to 2010. This study finds evidence that IPOs show signs of underpricing and underperform over three years after listing; however, the observed pattern of underperformance is not always statistically significant. The equal-weighted buy-and-hold abnormal returns and calendar-time analysis confirm the significance of the IPO underperformance over the three year period after listing on the exchange. Extreme bounds analysis is used to test the sensitivity and robustness of twenty six explanatory variables in determining the IPO underperformance. The results reveal that the robust predictors of IPO underperformance include underpricing, financial leverage, age of the firm and oversubscription for buy-and-hold return calculations and underpricing, hot activity period, post issue promoters’ holding, issue proceeds and aftermarket risk level for cumulative abnormal return calculations. Moreover, the fads hypothesis and the window of opportunity hypothesis are applied to explain long-run IPO performance.

How home country identity salience affects emerging market companies' overseas IPO performance: an empirical investigation from China

PurposeThe purpose of the current study is to examine how and when home country identity salience of emerging market companies affects their overseas initial public offering (IPO) performanceDesign/methodology/approachBy using secondary data from multiple sources, this study empirically tests the proposed research framework in the context of Chinese companies' overseas IPO activities in the US stock markets.FindingsThe results demonstrate that home country identity salience positively affects overseas IPO performance, and thus can be recognized as the asset of foreignness. Cultural specification positively moderates the effect of home country identity salience on overseas IPO performance. Market internationalization also plays an important moderating role in the relationship between home country identity salience and overseas IPO performance.Originality/valueThe current study identifies a new factor, that is, home country identity salience, that can mitigate the liability of foreignness for emerging market companies in their overseas IPO activities. The study also documents the positive cultural impacts on overseas investors in a financial and international context.

Do Discounts Enhance or Degrade IPOs Valuation Performance?

In the present study, we investigate the impact of discounts on the valuation performance of initial public offerings. Review of existing literature reveals that such valuation performance lacks examination in terms of discounts as most studies focus on valuation methods. Accordingly, we examine the valuation performance of initial public offerings before and after applying discounts. Whereby, underwriters apply a deliberate discount to fair value estimate before setting the final offer price. We assess the valuation performance of initial public offerings through bias and accuracy errors as well as explainability. When valuation errors are low, the valuation performance is deemed superior. Our sample consists of 39 initial public offerings conducted on the Moroccan stock exchange between 2004 and 2018. We use publicly available prospectus to collect necessary data. Our results reveal that discounts applied to fair value estimate when setting the final offer price reduce valuation errors. Consequently, discounts enhance the valuation performance of initial public offerings. In fact, both optimistic and pessimistic final offer price are closer to market price in comparison with optimistic and pessimistic fair value estimate. We conclude that if valuations conducted by underwriters are objective, discounts serve as a qualitative valuation to supplement the quantitative one. This qualitative valuation incorporates relevant information about market circumstances with regard to initial public offerings. This indicates the superior fundamental analysis underwriters are capable of performing. However, if valuations conducted by underwriters are subjective, then underwriters deliberately overestimates fair value estimate to justify applying discounts when setting the final offer price. Nonetheless, our study reveals that discounts are more than proportional to valuation optimism. Consequently, while discounts absorb this valuation optimism, they also set a valuation pessimism. In other words, discounts avoid overpricing initial public offerings, yet they result in underpricing them. Interestingly, we discover that although optimistic fair value estimate and pessimistic final offer price have approximate valuation errors, underwriters are more comfortable underpricing initial public offerings than overpricing them.

Review of short-run performance of initial public offerings in Australia

This study investigates the short-run performance of initial public offerings in Australia. Based on sources from the Morningstar DatAnalysis database, we analyzed 211 Australian publicly traded initial public offerings (IPO) listed on the Australian stock exchange between January 2011 and December 2015 using multiple regression analysis with dummies to represent industry and listing year. According to our analysis, total market return indicates an IPO underpricing phenomenon whereas secondary market shows an overpricing scenario. Moreover, this analysis supports the contention that short-run performance fluctuations were based on the listing year and industry settings. This study contributes to the literature by analysing the short-run performance of both the primary and secondary markets

Board financial expertise and IPO performance: An analysis of U.S. public offerings and withdrawals

Potential investors examine governance characteristics prior to an initial public offering (IPO) to assess the quality and prospects of the issuing firm. One important governance characteristic is board financial expertise, as it provides directors with the relevant knowledge for an IPO process and is valuable for the board’s monitoring duties. Therefore, the purpose of this paper is to examine whether and how board financial expertise affects IPO outcomes. To do so, I employ a sample of 414 completed and 85 withdrawn IPOs that were filed from 2014–2017 at NYSE or NASDAQ. I document that the ratio of directors with financial expertise on the board is negatively associated with the level of underpricing and the probability of IPO withdrawal. The results suggest that particularly outside directors with financial expertise have a positive signaling effect and help to reduce information asymmetry around initial public offerings. Above that, using quantile regression, I find that director financial expertise is most valuable for issuances with high levels of investor uncertainty. Therefore, this study makes important contributions to the corporate governance and IPO literature by providing a comprehensive analysis of the effects of board financial expertise on IPO outcomes

An Analysis of Pakistani, Japanese, and U.S. Initial Public Offering Performance: Is Ownership Concentration Important?

An Analysis of Pakistani, Japanese, and U.S. Initial Public Offering Performance: Is Ownership Concentration Important?

Geographic distance, firm affiliations, and IPO performance: evidence from China

ABSTRACT Firms going through an initial public offering (IPO) face many uncertainties. Geographic distance between the firm headquarters and the major financial centers, where most investors are located, is another concern. Using a sample of 688 Chinese initial public offerings between 2005 and 2012, we find that remote firms leave investors informationally disadvantaged leading firms to underprice their offering to a greater extent. Furthermore, we find that business affiliations (prestigious lead underwriters and government), which signal firm quality, lessen and the effect of geographic distance on underpricing. Thus, in an IPO context, signals have increasing value for more geographically isolated firms wishing to maximize initial public offering performance. Our study has implications for both academics and practitioners by offering new insights on how geographic distance and signals impact IPO performance.

Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled

This article examines the performance of initial public offerings (IPOs) issued by the economic sectors in India. It analyses the level of underpricing measured by market adjusted initial return (MAIR), short-run performance measured by market-adjusted abnormal return (MAAR) and long-run performance measured by 3-year buy and hold abnormal return (BHAR) methodology relative to Sensex and Nifty for 40 IPOs approaching the capital market during the period 2006–2016. The selection of IPOs is based on the foreign direct investment (FDI) limit of USD 3,000 million in each economic sector, that is, primary sector, secondary sector and tertiary sector. The long-run analysis is done at the end of the first year, the second year and the third year. It is found using the ordinary least square (OLS) regression that variables like age of the issuing firm and volume traded on the first day of listing have a positive relation with initial returns, while offer size of the IPO has a negative relation with the initial return. Further, this study also finds out that the secondary sector performs poorly in the long run relative to the primary and tertiary sectors. This study can be of importance to investors for assessing different sectors before investing.