Performance Of IPO Firms Research Articles

Long-run Stock Return of IPO Firms in India: Examining Investment and Profitability Hypothesis

The finance literature has analysed several aspects of the IPO market, namely, hot issue market, initial under-pricing, and long-run underperformance. Among them, findings of long-run underperformance are particularly significant as it indicates that investors incur losses on a perpetual basis by investing in a portfolio of IPO firms. According to the OECD (2019) , during 2009–2019, the number of IPO issuances by non-financial firms in India were the third-highest globally. In the case of India, only a few studies have investigated the long-run performance of IPO firms. Accordingly, the present study fills a void in this arena. The study, along with the conventional event study techniques, deploys the Fama-French Five-Factor model for analysis of long-run underperformance. The study estimates investment and profitbility factors for India following the methodology illustrated by Fama-French (2015) . The study finds that long-run underperformance by the IPO firms is not absolute but specific to the sample and methodology used for analysis. It also finds that underperformance is prevalent in high IPO volume years. The regression results for IPO firms as portfolios in the capital asset pricing framework do not show any long-run underperformance. This finding supports the conclusion that the long-run underperformance by IPOs reported in the previous studies results suffers from sample and methodology bias. The analyses in the five-factor framework show the plausibility of higher investment by IPO firms resulting in lower market return. IPO firms make above-industry-average capital expenditure, and their profitability converges with the industry after issue.

Cash shortfalls in IPO firms

We find that most IPO firms will run out of cash soon if they did not receive proceeds from IPOs. The cash shortfalls are not caused by increases in capital expenditure, R&D, M&A, or debt repayment and persist during the 5 years after IPO. Negative net cash flows help explain the persistent cash shortfalls. These results are consistent with the funding horizon theory. IPO firms with more initial cash shortfalls also have lower cash flows in the next 5 years, suggesting that initial cash shortfalls can be used to predict the future operating performance of IPO firms.

Financial performance index of IPO firms using VIKOR-CRITIC techniques

Investments in IPO markets are becoming increasingly complex because of the uncertain information and contradictory criteria that needs to be considered during the decision-making process. The main aim of this paper is to apply the Multi-Criteria Decision-Making Technique (MCDM) in order to improve the quality of the financial decision-making process and the quality of the resulting choices. This paper empirically evaluates the performance of IPO firms listed on the Saudi Stock Market using the accounting and value-based financial measures in ‘pre- and post-IPO period’, ranking them using the combined approach of objective weighting method (CRITIC) and the multi-criteria decision-making technique (VIKOR). The ranking list generated through the VIKOR_CRITIC approach will enable investors to identify the best ranked IPO firms and also allow them to make inter-firm comparisons based on the important representative measures drawn from a complex set of financial performance criterion. The combined VIKOR_CRITIC approach used in this study yielded favorable results and it ranked Saudi Airlines Catering Co., Saudi Co. for Hardware and Saudi Ground Services as the best performing IPO firms.

COVID-19: Fear of pandemic and short-term IPO performance

This study analyzes the relationship between COVID-19 related fear and short-term IPO performance. Though the average market-adjusted initial return of IPOs in the year 2020 is higher than that of the last four decades, it decreases if fear of pandemic increases. The evidence is robust when we use matching firm-adjusted initial returns. Next, we analyze the persistence of performance after the IPO date. The results show that the performance of IPO firms is more sensitive to the fear of the pandemic than the performance of similar existing firms.

COVID-19: Fear of Pandemic and Short-Term IPO Performance

This study analyzes the relationship between COVID-19 related fear and short-term IPO performance. Though the average market-adjusted initial return of IPOs in the year 2020 is higher than that of the last four decades, it decreases if fear of pandemic increases. The evidence is robust when we use matching firm-adjusted initial returns. Next, we analyze the persistence of performance after the IPO date. The results show that the performance of IPO firms is more sensitive to the fear of the pandemic than the performance of similar existing firms.

Nonrandom Survival and Long-Run Performance of IPO Firms

I find IPO firm survival is not random: better-performing IPOs are more likely to survive. Some unlucky IPO firms are delisted early after experiencing negative idiosyncratic shocks. These IPO firms’ average observed performance understates their true performance, creating the reverse survivorship bias. Because of non-random survival, seasoned firms have greater expected returns than IPO firms, creating the survivorship bias. Buy-and-hold abnormal returns relative to matched seasoned firms underestimate IPO firm performance because of the two biases. Alpha of the calendar time portfolio of IPO firms, unaffected by the biases, offers an unbiased measure of the average IPO firm alpha.

Financial and Operating Performance of Initial Public Offerings in Pakistan

This study examines the relationship between prior IPO demands and post-IPO financial and operating performance of ?rms listed in the Pakistan Stock Exchange. A sample of 51 listed firms, covering a period of ten years, is examined. Predominantly, the investors' demand has been analyzed from two perspectives including oversubscription (a high demand from investors as compared to shares offered by firms) and under subscription (a low demand from investors as compared to shares offered by the firm). Multiple regression analysis has been applied, where the findings revealed that investors demand IPO bring no significant change in the financial and operating performance of IPO firms. Moreover, the analysis reveals that firm size, issue size, and leverage bring no notable change in the operating performance of IPO firms. The findings are important for the investors, portfolio managers, and underwriters.

Does corporate hedging affect firm valuation? Evidence from the IPO market

AbstractFocusing on the IPO market, we examine the influence of corporate hedging on firm valuation. Consistent with the argument that hedging reduces information asymmetry, we find that hedging IPO firms are associated with lower price revisions and underwriting fees. More important, hedging reduces IPO underpricing, especially for informationally opaque firms. This provides strong evidence that corporate hedging increases firm valuation. We also show that corporate hedging lowers aftermarket idiosyncratic volatility, enhances aftermarket liquidity, and improves the long‐term performance of IPO firms. We use both an instrumental variable approach and a regulation change on derivatives supply to address endogeneity concerns.

A Study on the Effects of Investor Sentiment on the Short-run Performance of IPO Firms

본 연구는 풋백옵션제도 폐지 이후 공개기업의 투자자 심리의 변화가 상장일 첫날 및 단기투자 성과에 미치는 영향에 관해 실증분석 하였다. 사전 투자자 심리는 일반 공모 청약경쟁률을 대용변수로 사용하였으며 사후 투자자 심리는 Yang, Zhou(2015)의 방법론에 의해 다변수(상대강도지수, 투자심리선, 수정회전율, 개인투자자의 매수-매도거래 불균형)를 이용하여 주성분분석과 시장모델을 선형결합 하여 산출하였다. 실증분석 결과는 다음과 같다. 첫 번째, 기업의 공모금액은 상장일 첫날 주식수익률에 부정적인 영향을 미쳤다. 사전에 높은 청약경쟁률을 보인 기업은 상장일 첫날 주가수익률(공모가 대비 종가 수익률 및 공모가 대비 시초가 수익률)이 상승하였다. 또한 개인 투자자의 순매수는 상장일 첫날 주가수익률을 설명하지 못했으나 중앙값 기준, 순매수가 작으면 주가는 상승하였다. 두 번째, 사전 투자자 심리가 과열되면 상장일 이후 6개월, 12개월 기간의 단기 투자 성과는 낮았다. 그러나 상장일 이후 투자자 심리(SRI)가 상승하면 단기투자 성과는 향상되었다. 투자자 심리는 공개기업의 주가수익률을 설명하는 주요 가격 요인 중의 하나이다. 한편, 상장일 이후 개인투자자의 순매수는 주가를 하락시켰다. 세 번째, 과거 투자기대 심리가 높든 낮든 상장일 이후 단기 투자성과는 상장일 이후 투자자들의 기대심리에 결정되었다.This paper examines the effects of investor sentiment during pre-market and aftermarket on short-run performance in the Korean IPO market after the abolition of the put-back option system. We estimate 4 investor sentiment indices using Yang, Zhou (2015)’s methodology combining principal component analysis and market model with daily frequency data. The main empirical results are as follows: First, we find that investor sentiment (substitution rate) during pre-market have a positive relationship with stock return (offer price to close price and offer price to open price) on the first day of the listing. Also, if individual investors buy less, the return on stock price on the first day of the listing will rise further. Second, if investor sentiment during pre-market was high, short-term performance has been sluggish since the date of listing. The increase in investor sentiment (SR1) during aftermarket estimated using multivariate has increased short-term performance over 6 and 12 month periods after the date of listing. A rise in investor expectations encourages a rise in stock prices, which explains that investor sentiment is one of the major pricing factor for IPO firms. However, as individual net buying increased, the stock price fell.

Investor attention and performance of IPO firms: Evidence from online searches

This paper examines whether abnormal investor attention has predictive power for IPO first day underpricing and long term underperformance. In particular, we employ the Baidu Index as the proxy for abnormal investor attention and find positive correlations between abnormal investor attention and IPO first day return, which indicates that a higher abnormal investor attention prior IPO would result in a higher IPO first day return. However, we find weak significant correlation between IPO long term underperformance and abnormal investor attention. We further investigate the interaction effect of IPO first day return and long term performance. The results show that IPO first day return has weak predictive power for long term underperformance.

Effects of Exports, IPO Duration, and Government Protection on Market Returns of Chinese IPO Firms

This study examines the influence of exports, IPO duration, and government protection on the initial returns and long-run performance of IPO firms in...

A Study on the Long-Run Performance of Initial Public Offerings in India

This paper examines the long run performance of 438 initial public offerings in India that got listed on the Bombay Stock Exchange from 1992 to 2001. It further attempts to identify the factors explaining the long-run performance of IPO firms. The cumulative abnormal return at the end of fifth year is 184.64% which is very high in contrast with the returns observed in the developed countries. Substantial variations have been observed across firms belonging to different age groups and industries. Variations in performance of IPO firms is also evident when firms are segmented according to their initial returns, issue price and issue size. Initial returns, issue size and market conditions primarily explain variations in long run performance of Indian IPOs.

Is there still a Berlin Wall in the post-issue operating performance of European IPOs?

This paper studies the post‐IPO operating performance of a sample of 555 European firms that went public between 1995 and 2006. Consistent with previous findings, we observe a decline in post‐issue operating performance of IPO firms. However, firms located in emerging European countries perform even worse after the IPO than firms located in developed European countries. Our results suggest that this less successful post‐issue operating performance by firms located in emerging countries can be explained by a more aggressive use of accruals and a better timing of the IPO in order to coincide with a period of high operating performance.

Intended use of IPO proceeds and firm performance: A quantile regression approach

This paper investigates the link between intended use of proceeds and the decline in post-issue operating performance of IPO firms. It distinguishes between capital and strategic motives and employs quantile regressions to examine the Indonesian equity market over the period of 2000–2010. The overall evidence shows that post-issue performance can be explained by firm motivation to IPO issue with the capital motive being the critical driver of good performance in Indonesia. Investment in fixed assets and in stock market shares lead to better performance while other usages lead to poor performance. The results are robust to accounting for ownership structure and to alternative classifications of IPO intent. These results have policy implications for the management of IPO proceeds.

Intended Use of Proceeds and the Post-Issue Operating Performance of IPO Firms: A Quantile Regression Approach

This paper investigates the link between intended use of proceeds and the decline in post-issue operating performance of IPO firms. After taking into account special features of the compositional data containing zero values, a quantile regression analysis is employed for the Indonesian equity market data over the period of 2000-2010. The results show that the post-issue performance can be explained by different types of intended use of proceeds. Fixed asset investment and investment in stock market shares will lead to better operating performance for average and high performing firms only. Allocation to other usages leads to poor operating performance. The findings were found to be robust when ownership structure was included in the models. These results have policy implications for the management of IPO proceeds.

Grading and Risk-Adjusted Performance of Indian IPOs

Most studies on price performance of Indian IPOs have strengthened international evidence that there would be a strong underpricing in the short run, but negative returns in the long-run. To solve the problem of mispricing and include more transparency, SEBI mandated the grading of IPOs by recognized credit rating agencies from May 1, 2007. The mandatory grading process is expected to give an independent assessment of the fundamentals of the issue. In this research paper, we tried to ascertain the impact of grading on the performance of IPO firms. We attempted to understand the efficacy of the grading mechanism in place to address the problems associated with adverse selection and improve pricing efficiency.

Is There Still a Berlin Wall in the Post-Issue Operating Performance of European IPOs?

This paper studies the post-IPO operating performance of a sample of 555 European firms that went public between 1995 and 2006. Consistent with previous findings, we observe a decline in post-issue operating performance of IPO firms. However, firms located in emerging European countries perform even worse after the IPO than firms located in developed European countries. Our results suggest that this less successful post-issue operating performance by firms located in emerging countries can be explained by a more aggressive use of accruals and a better timing of the IPO in order to coincide with a period of high operating performance.

How Bank Health Affects Capital Structure and Performance of IPO Firms? - Evidence from the Japanese Financial Crisis

This paper investigates whether the health of a bank affects the client firm’s capital structure and then leads to inefficiency in the client firm’s decision-making. Using the Japanese IPO dataset from 1996 to 2005 when bank sectors suffered liquidity shortages and IPO booms occurred at the same time, our empirical study reveals the following findings. First, we find that IPO firms whose main bank’s health is worse have greater financial leverage. Second, such IPOs, with unhealthy banks, raise more proceeds at the time of the IPO, and the probability of SEO within three years is high. Last, we find that such over-lending by the poor-health bank leads to higher cost of capital, and the subsequent long-term stock performance of firms with poor-health banks is worse. Overall, our empirical results reveal that the health of a bank affects its client firms’ capital structure and can lead to inefficiency in their client firms’ behavior.

Are Financial Analysts of IPO Firms Under Pressure: The European Evidence

Long run returns of IPO firms’ recommendations in Europe reveal possible conflicts of interest and pressures faced by financial analysts over the 1991-2005 period. Nevertheless, recent European legislations about investment research have led to better long run performance of IPO firms’ recommendations issued by affiliated analysts over the 2001-2005 period. Findings reveal that market participants do not fully incorporate the perceived value of recommendations. Indeed, difference between affiliated and unaffiliated analysts’ recommendations is statistically significant over one, three or five year horizon. The timing of recommendations specifies that investors pay more attention to affiliated analysts’ recommendations made later in the aftermarket. This result could suggest that the later is the recommendation made in the IPO aftermarket the weaker is the pressure faced by affiliated analysts.

Are Financial Analysts of IPO Firms Under Pressure: The European Evidence

Long run returns of IPO firms’ recommendations in Europe reveal possible conflicts of interest and pressures faced by financial analysts over the 1991-2005 period. Nevertheless, recent European legislations about investment research have led to better long run performance of IPO firms’ recommendations issued by affiliated analysts over the 2001-2005 period. Findings reveal that market participants do not fully incorporate the perceived value of recommendations. Indeed, difference between affiliated and unaffiliated analysts’ recommendations is statistically significant over one, three or five year horizon. The timing of recommendations specifies that investors pay more attention to affiliated analysts’ recommendations made later in the aftermarket. This result could suggest that the later is the recommendation made in the IPO aftermarket the weaker is the pressure faced by affiliated analysts.