IPO Performance Research Articles

Financial institution IPOs and regulatory environments

We examine underpricing and long term performance of financial institution IPOs around major regulatory changes and during the balance of political power in the United States. We find higher underpricing and lower long term performance post Riegle-Neal Interstate banking, Financial Services Modernization, and Dodd-Frank Acts, supporting the Regulatory Burden hypothesis that investors account for incremental regulation-related costs in their investment decisions. We document less underpricing and better long-term performance during the Democratic balance of power, but more underpricing and lower long-term performance during the Republican balance of power. This study provides important insights for investors, financial institutions, and regulators.

Underwriter Compensation, Marketing Effects, Investor Attention, and IPO Performance

After the systematic reform in the IPO market from 2005, underwriting spreads in China keep increasing and become even higher than that in the US market during the past decade. Besides, unlike “the seven percent solution” in the US, spreads in China demonstrate a significant cross-sectional variation. Using the sample of IPOs from 2005 to 2015, we examine the determinants and economic meaning of underwriting spreads in China. We find significant firm, issuance, and policy characteristics that explain the variation of underwriting spreads. Next, we extract abnormal components of spreads to further explore their valuation effects. We document that abnormal spreads can reflect promotional efforts performed by underwriters. Specifically, they are positively associated with institutional investor participation and offer price revision in the IPO process. Moreover, we show that promotional efforts lead to reductions in IPO underpricing. Overall, issuing companies benefit from the deregulation of underwriting services in the way that greater promotional efforts lead to less underpricing and more capital raised by IPO firms. However, government interventions and policy uncertainty can result in increased IPO listing costs in China.

Tell Me a Story: A Sensemaking and Sense-giving Perspective On IPOs

This study adopts a sensemaking and sense-giving perspective to examine how venture capital affiliation influence its portfolio companies' IPO performance beyond the certification effect. We argue that the IPO company engages in a sensemaking and sense-giving process to tell a story to investors and influence their perceptions. The narratives help shape investors' perceptions by conveying entrepreneurial orientation and customer orientation. Based on a dataset consisting of 1,831 companies that went public between 2005-2019, we use PLS-SEM to test a multiple mediation model. The results suggest that venture capital presence positively affects IPO performance through increasing entrepreneurial orientation and customer orientation narratives in the prospectus.

Legal Perception and IPOs: An Investigation into the Impact of Legal Signaling on Firm Valuation

In this paper, we contribute to the literature on institutional determinants of IPO valuation. We introduce the concept of “legal signaling,” which focuses on the perception of law and thus complements the existing institutional approaches to IPO valuation which consider the quality of the positive law (“standard view”) and firm-level corporate governance practices (“firm signaling view”). Our approach explicitly models the difference between the effect of the positive law and the effect of the perception of law on IPO value. Based on a world-wide longitudinal dataset of IPO performance across a large number of countries, we find strong support for the claim that the perception of quality of law, operationalized as a country’s legal shareholder protection, is more important than its actual quality to explain post-IPO firm value. We also uncover that the effect of perception on IPO value is stronger when the law’s quality is correctly perceived than when it is misperceived. Overall, our findings underscore the need for a more sophisticated theorization of the ways in which law affects entrepreneurial finance.

The Role of National Context in the Relationship Between Founder CEO and IPO Performance

Although founders are often replaced with external CEOs prior to firms making IPOs, firms that do retain founder CEOs generally perform better at IPO. However, this relationship may be contingent upon context. This study investigates how national context influences the relationship between a founder CEO and IPO long-run performance. We hypothesize that founder-CEOs will perform better in IPO firms in countries where managerial discretion, future orientation, and level of conformity to professionalize management are high, and uncertainty avoidance is low. Using insights from the upper echelon and the institutional theory and utilizing hierarchical linear modeling to analyze over 1,000 firms, we find that founder CEOs perform best in IPO firms in a national context where managerial discretion is low, uncertainty avoidance is high, and level of conformity is high. Implications for theory and practice are discussed.

Analysis of IPO Performance in Indonesia in the "Hot Market" Period and Its Influencing Factors

The aim of this study is to test whether there is an underpricing phenomenon within the Hot Market period in Indonesian public companies in 2018. Among 56 companies which conducted IPOs, our descriptive statistical analysis shows 53 companies experienced underpricing and the rest experienced overpricing. We used nonparametric statistic to calculate the average of initial return, and multiple linear regression to test the effect of independent variables on the initial return. The result shows that the underpricing phenomenon occurred in IPO performance in Indonesia. Meanwhile, the results of hypothesis testing show that the company’s age and the underwriter’s reputation had no effect on initial return, while company’s size and market sentiment show a significant negative effect on initial return.

Finance Impact of corporate governance on the valuation of IPOs in Pakistan stock exchange listed Firms. A moderating role of the family Ownership.

The objective of our study is to investigate the impact of the corporate governance on the IPO performance with moderating impact of the family ownership. To investigate that relationship, we used the data of IPOs registered from 2008 to 2017 in Pakistan Stock exchange. We used the OLS methods to analysis of the data. Our findings shows that Board independence (BIND) has positive significant relationship with IPO return, it means that independent directors have the more technical knowledge and experience in maintaining the IPO return and making the strong policy for the organizations. CEO duality has the significant negative relationship with IPO return with (P=0.0833), it means that when CEO has the combine rule then decisions are not distributed, and monopoly existed in decisions that leads to the negative impact on the IPO performance. Board diligence, Board size, ownership concentration and gender diversity have no impact are being seen in our analysis. In the moderating effect of the family ownership in reference to board diligence (BD) the results changed to significant positive relationship, it means that with the family-owned firms when board meetings increased then increased in the IPO return due to some factors. With the moderation of the family ownership the results of the Board independence also improved that shows the role of the family-owned firm in between them. Women in the board that means the gender diversity has no impact but with the moderating effect of the family ownership women in the board has significant positive impact. This study is helpful for the financial managers, investors, and the finance students and also for the government, in maintaining the code of the corporate governance.

THE INFLUENCE OF GROUP AFFILIATION ON IPOS PERFORMANCE: AN EMPIRICAL ANALYSIS OF INDIAN IPOS

Securities and Exchange Board of India (SEBI) keeps on improving the securities market regulations to improve investors' protection. To revive the primary market, in 2009, SEBI ICDR (Issue of Capital and Disclosure Requirements) Regulations, 2009 was amended with revised guidelines. The advantage of group affiliation and reputation on IPO performance differs with time and varied business groups. Grouped IPOs evidenced mixed outcomes based on theories developed under tunnelling, propping, network and certification hypothesis. We examine how the business group affiliation impact the underpricing, liquidity and volatility performance of IPOs. Using database of 259 IPOs issued in Indian market from 2009 to 2019, we find less underpricing, liquidity and volatility for group affiliated IPOs. The present study supports certification, network and propping hypothesis. We find underpricing extent is reduced than earlier period, average security return 12 percent while underpricing 11.79 percent is evidenced. Liquidity and volatility reported a declining trend from listing day to 1-month post listing.

Legal Perception and Finance: The Case of IPO Firm Value

AbstractIn this paper, we contribute to the literature on institutional determinants of IPO valuation. We introduce the concept of ‘legal signalling’, which focuses on the perception of the quality of law and thus complements the existing institutional approaches to IPO valuation which consider the quality of the positive law (‘standard view’) and firm‐level corporate governance practices (‘firm signalling view’). Our approach explicitly models the difference between the effect of the positive law and the effect of the perception of law on IPO value. Based on a worldwide longitudinal dataset of IPO performance across a large number of countries, we find strong support for the claim that the perception of the quality of law is more important than its actual quality to explain post‐IPO firm value. This effect holds regardless of whether the law's quality is correctly perceived or misperceived. Overall, our findings underscore the need for a more sophisticated theorization of the ways in which law affects entrepreneurial finance.

Can management tone predict IPO performance? – Evidence from mandatory online roadshows in China

In this study, we investigate the relation between the sentiment of online roadshow texts and IPO first-day returns as well as post-IPO operating performancein China's stock market. Our results suggest that a higher positive tone in management's responses and comments during online roadshows is significantly associated with greater first-day returns. The results also show that the management tone is significantly and positively related to post-IPO operating performance. Our study indicates that the tone of online roadshows is informative and its information content has important implications for understanding IPO first-day returns and future operating performance in China's stock market.

Post Listing IPO Returns and Performance in India: An Empirical Investigation

Objectives: (a) To analyse the performance of Indian IPOs in the short term. (b) To determine the significance of abnormal return of the IPOs. (c) To study the impact of over-subscription, profit after tax, promoters’ holdings, issue price and market returns on IPO performance. Design/ Methodology/Approach: This research paper is based on empirical analysis. All the 52 IPO’s listed in the NSE (National Stock Exchange, India) during the year 2018 to 2020 were considered for the study.

Do Do-Gooders Do Well? Corporate Social Responsibility, Business Models and IPO Performance

Despite the scholarly enthusiasm, most previous studies have explored corporate social responsibility (CSR) and its performance implications within the context of large mature firms, while ignoring CSR implications for young entrepreneurial firms. By drawing on the insights from stakeholder theory and business model we develop theoretical arguments that justify shared value creation by entrepreneurial ventures.

The nexus between risk factor disclosures and short-run performance of IPOs – evidence from literature

PurposeThe main purpose of the present study is to stretch the theoretical framework of existing stock of literature with reference to Risk Disclosures in IPO Prospectus and IPO performance. The systematic literature review study endows easy and quick access to researchers as well as categorization of the available literature.Design/methodology/approachFifty research papers, which has been published or presented from 2000 to 2019 and are related to IPO risk disclosures and IPO performance, have been finalized. Further, these research papers were categorized based upon the five different variables to identify the probable research gap in the selected topic.FindingsThis review provides a coherent summary of past studies related to topic and develop a comprehensive evidence on relationship between disclosure of risk factors and IPO underpricing in short run. It shows the existing research gap that needs to be fulfilled to expand the research horizon of future research studies.Research limitations/implicationsThe sole limitation of the study is that being a systematic literature review study, it does not carry any empirical results.Practical implicationsThe investors will be able to identify the key risk factors, disclosed in IPO prospectus, that may have probable dent on the short-term return from IPO. The findings will further help the investors and financial analyst to identify the degree of impact of risk disclosures that are listed in IPO prospectus.Originality/valueThe paper is a first of its kind to stretch the existing literature and develop theoretical framework in the context of risk factor discloses in IPO prospectus and IPO performance with reference to India. The present study is an attempt to integrate the existing gap between empirical research and existing literature and suggest the techniques to the future practitioners to widen the horizon of their research.

IPO Performance: A Cross-Country Comparison of the effect of Regulations

We compare short-term and longer-term returns around IPOs, as well as post-issue performance, between US and China IPOs. Short-term abnormal returns are higher for China IPOs than US IPOs, both in univariate test (difference of means and medians tests), and in multivariate tests, controlling for other variables and fixed effects. We postulate that this is due to the different regulations between the two countries that could lead to more underpricing and constraints on reaching true value, in the short run, for China IPOs. However, the upward price pressure leading to superior stock returns does not last. In the longer-term, not only do China and US IPO firms have similar abnormal stock returns – on average negative as documented in the extant literature - but also the firms’ operating performance, on average, as well as their book-to-market ratios (a proxy for future growth options) are not significantly different, in both univariate and multivariate tests.

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.

Greenness index: IPO performance and portfolio allocation

This study examines how the greenness of the firm affects the short- and long-term performance of IPOs. To measure the greenness of the firm, we develop the Greenness Index based on the emissions produced. We find that the greenness of the firms operating in services and financial sectors is higher than in other sectors. To examine the short- and long-run performance of IPOs, we classify our sample into high and low green firms. In the short-run, high green firms obtain a lower return than low green firms. However, high green firms perform better than low green firms in the long-run. This study also determines the factors that cause short- and long-run performance, and the results suggest that the firm’s greenness negatively influences initial returns and underperformance of IPOs. Finally, we develop a theoretical model in terms of the portfolio's allocation and assert that investors participate in high-green firms to optimize their portfolio.

IPO Performance Prediction During Covid-19 Pandemic in Indonesia Using Decision Tree Algorithm

The purpose of this study was to explain the IPO underpricing phenomenon and to find out whether the decision tree algorithm model was able to predict the IPO performance during the Covid-19 pandemic in the Indonesian capital market. The model developed uses the IPO performance classification target variables, namely overpricing, zero, underpricing level-1 or underpricing level-2. Through the modeling of the decision tree algorithm using 149 IPO action data for 2017-2019 and tested on 45 IPO action data in 2020, the results of the study found that the decision tree algorithm was able to explain IPO performance based on the specified classification range. The use of the decision tree algorithm model to explain the IPO performance can be an alternative to the linear regression econometric model that has been widely used in previous studies to provide input for investors in making investment decisions. DOI: https://doi.org/10.26905/jkdp.v25i1.5137

The consequences of political donations for IPO premium and performance

This study explores the effect of directors' political contributions on IPOs' valuation and firm survival. We find that individual contributions by directors bring significant benefits to the IPO firms. Specifically, we show that political contributions of board members, particularly those of CEOs and founders, increase the IPO premium and the survivability of IPO firms. We find that the relationship between directors' political contributions and IPO premium is particularly strong among non-venture-backed firms, while the link between directors' political contributions and firm survival is more pronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donations and IPO performance. Our results confirm the relevance of signaling and resource dependence theories.

The Social and Material Dimensions of Power: A Study of Company Directorss Political Donations

This study explores the effect of directors’ political contributions on IPOs’ valuation and subsequent performance. We find that individual contributions by directors bring significant benefits to the IPO firms. Specifically, we show that political contributions of board members, particularly those of CEOs and founders, increase the IPO premium and the long-term performance of the IPO firms. These findings do not depend on the directors’ political ideology or party affiliations and are robust to endogeneity concerns and to alternative measures of political donations and IPO performance. As a possible consequence of Citizens United, we also find that individual contributions of IPOs directors have tripled, with a trajectory of further increase. Our results confirm the relevance of signaling and resource dependence theories.