post-IPO Performance Research Articles

Money talks? The impact of excess funding on post-IPO performance

Money talks? The impact of excess funding on post-IPO performance

ESG practices disclosure and initial performance of Malaysian IPOS

Companies’ decision to go public is risky because of the high uncertainty level from the companies’ unknown history prior to their listing. Recent studies in the Malaysian market reported the declining trend of companies’ initial performance, relating it to investors’ current demand for higher information transparency that can reflect companies’ sustainable evolution as a means to attract their demand in subscribing newly issued shares. Thus, this study aims to investigate the impact of disclosing ESG practices on companies’ initial performance. Using a linear regression with maximum likelihood (ML) estimation, this study examines 171 initial public offerings (IPOs) issued in the Malaysian market from 2015 to 2023. By using two ways of measuring companies’ initial performance (offer-to-open and offer-to-close), the findings show that higher information disclosure on ESG practices will only be reflective and positively affect companies’ performance by the end of the day. Further examination of individual ESG pillars indicates that environmental disclosures negatively influence companies’ initial performance, while social and governance disclosures positively influence companies’ initial performance. A large investment in maintaining a high level of environmental practice can be costly, negatively influencing companies’ performances. Higher social and governance disclosure attracts socially conscious investors and reflects good internal governance, increasing demand for the companies’ shares during the IPO and positively influencing companies’ performances. This study contributes to the growing literature concerning ESG and post-IPO performances specific to the Malaysian market and proposes recommendations on the importance of disclosing ESG practices prior to their IPO. AcknowledgmentsThe authors would like to acknowledge that this article is part of a research project funded by Universiti Teknologi MARA (UiTM) for the MyRA Grant Scheme, file no: 600-RMC 5/3/GPM (118/2022).

A Tale of Two Intermediaries: Investment Banker-Auditor Social Ties and IPO Quality

SUMMARY Firms undertaking an initial public offering (IPO) appoint investment bankers and auditors to certify information disclosed to investors. We find that social connections significantly increase the likelihood that the bankers and auditors become involved in the same IPO deal. Although some theory and evidence suggests that information transferred via social networks may enhance economic agents’ performance, other research implies that such links may admit bias into auditor judgment or impair their independence. Empirically, we find that IPO firms report higher discretionary accruals when bankers and auditors are socially connected. We also document that banker-auditor social ties are associated with lower earnings credibility and worse post-IPO performance. However, auditors benefit from social connections with bankers by attracting higher fee premiums and securing more future IPO audit businesses.

Fraud risk implications of celebrity SPACs

Purpose The purpose of this study is to extend the Fraud Diamond Theory to celebrity Special Purpose Acquisition Companies (SPACs) and investigate their post-Initial Public Offering (IPO) stock market performance. Design/methodology/approach After obtaining a sample of celebrity SPACs from the Spacresearch.com database, fraud risk characteristics were obtained from Lexis Nexus searches. Buy and hold abnormal returns were calculated for celebrity SPACs versus a small-cap equity benchmark for time intervals after IPO, and multiple regression analysis was performed to examine the relationship between fraud risk features and post-IPO returns. Findings Celebrity SPACs exhibit Fraud Diamond characteristics and significantly underperform a small-cap stock portfolio on a risk-adjusted basis after IPO. Research limitations/implications This study only examines celebrity SPACs that conducted IPOs on the NYSE and NASDAQ/AMEX and does not include those that are traded on the Over the Counter Bulletin Board (OTCBB). Practical implications Celebrity endorsement of SPAC vehicles attracts investors who may not be properly informed regarding the risk characteristics of SPACs. Accordingly, investors should be warned that celebrity SPACs underperform a small-cap equity portfolio and exhibit significant elements of fraud risk. Social implications The use of celebrity endorsement as a marketing device to attract investment in SPACs has regulatory implications. Originality/value To the best of the authors’ knowledge, this paper is the first to examine the fraud risk characteristics and post-IPO performance of celebrity SPACs.

Analysis of The Effect of Funding Strategy on The Company’s Financial Performance at PT Jasamarga Transjawa Tol


 
 
 This research aims to investigate the implications of funding strategies employed by PT Jasa Marga and its subsidiary PT Jasamarga Transjawa Tol on their financial performance. With the Indonesian government's increased investment in toll road infrastructure, Jasa Marga, a State-Owned Enterprise, has undertaken expansive endeavors, augmenting investments from IDR 24.8 trillion in 2018 to IDR 78.6 trillion by 2022. However, this escalation in investment levels also brings forth heightened liabilities, predominantly stemming from reliance on debt, particularly bank loans, in addition to equity. Such a scenario presents challenges in managing payment obligations and, if not handled adeptly, could imperil Jasa Marga's financial performance. Consequently, strategies aimed at bolstering the company's capital structure are slated for implementation in 2023. This exploration aims to assess how these financial strategies and the debt-equity balance influence company value and financial health, drawing on frameworks like the Pecking Order Theory. It seeks to comprehend the ramifications of internal and external financing on the company's solvency, as measured by ratios such as Debt Equity Ratio (DER), Debt Ratio, and Interest Coverage Ratio (ICR). The literature review delves into various financial strategies such as crowdfunding and Initial Public Offering (IPO), elucidating their motivations and repercussions on companies, with a specific focus on aspects like information asymmetry and changes in post-IPO performance. This research integrates theories, practical strategies, and financial metrics to derive meaningful, data-driven conclusions aimed at optimizing capital structure and enhancing financial stability. It offers valuable insights to stakeholders and facilitates improved financial decision-making processes within the company.
 
 

Innovative companies on NewConnect – regionalization and post-IPO performance

Innovative companies on NewConnect – regionalization and post-IPO performance

Tackling competition by reducing emissions: Private firms’ polluting behavior under peer IPOs

We examine the effect of competition on private firms' polluting behavior. Using detailed establishment-level data on sulfur dioxide emissions covering 1998 to 2013 and a generalized difference-in-differences empirical strategy, we find that competition caused by peer IPO has a negative impact on a firm's sulfur dioxide emissions. This effect is more pronounced when the focal firm is in a region with more market competition or stronger environmental regulation, when the focal firm is larger than or located closer to the IPO firm, or when post-IPO performance is better or the raised amount of proceeds of IPO is larger. Mechanism analyses show that focal firms reduce sulfur dioxide emissions by both increasing environmental investment and improving green research and development. The main results cannot be explained by an imitation effect, a decrease in focal firm's production, or enhanced regulation.

Studies on Indian IPO: systematic review and future research agenda

PurposeThis paper aims to review, discuss and synthesize the literature focusing on the Indian initial public offering (IPO) market. Understanding the Indian IPO market can help answer broader corporate finance questions. The growing number of IPOs in the Indian context, coupled with the increasing importance of the Indian economy in the global market, makes this review an essential topic.Design/methodology/approachThe systematic literature review methodology was adopted to review 111 papers published between 2002 and 2021. The authors used the Preferred Reporting Items for Systematic Reviews and Meta-Analyses approach during the review process. Additionally, the authors use a bibliometric review methodology to examine the pattern and trend of research in this area of interest. Furthermore, the authors conduct a critical review and synthesis of the top 20 papers based on citations. The authors also use a co-citation network and manual content analysis method to identify key research themes.FindingsThis review helps in identifying major themes of research in this area of interest. The authors find that majority of the research has focused on IPO performance whereas post-IPO performance needs critical attention as well. The authors develop a comprehensive framework and future research agenda based on their discussion.Research limitations/implicationsMeta-analysis of the literature can be conducted to gain better insights into the findings of prior studies.Practical implicationsThis review paper develops a comprehensive overview on Indian IPO market which can be of interest not only to Indian scholarship. India as an economy is increasingly gaining attention at the global level. Hence, the future research objectives as illustrated in the study can be of interest for the global scholarship also.Originality/valueTo the best of the authors’ knowledge, this is the first comprehensive review paper that examines, synthesizes and outlines the future research agenda on Indian IPO studies. This review can be useful for researchers, business policymakers, finance professionals and anyone else interested in the Indian IPO market.

Success begets success! Exploring the carry-over effects of total underwriting effort on post-IPO issuer firm outcomes

Past research on initial public offers (IPO) marketing highlights the positive impact of underwriters’ efforts on the post-IPO marketing and financial outcomes for the IPO issuer firms but the exact mechanism underlying these ‘carry-over’ effects is still not clear. We address this important research gap by exploring the impact of total underwriting effort (i.e., combined efforts by underwriters and other players involved in IPO issuance) on the issuer firms’ post-IPO performance and the mediating role of IPO issuer satisfaction in this process. We test all the hypotheses using data from the China Stock Market and Accounting Research (CSMAR) database on 2,013 IPOs listed on Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). Our findings provide a holistic view of the complex marketing forces that drive the total underwriting effort on the IPO issuer firms’ post-IPO performance, and the focal role played by IPO issuer satisfaction in this process.

Board diversity and post-IPO performance: the case of technology start-ups

ABSTRACT IPO firms in the technology industry are regarded as vulnerable due to their limited resources, inexperience, and relatively short technology and product lifecycles. They also lack a track record to signal to the market that they are equipped with sufficient ability to overcome the challenges faced in this highly competitive environment. This study examines whether board diversity helps IPO firms perform better in such a challenging environment; furthermore, we explore the potential contingencies that magnify or weaken the benefits of board diversity by examining how its impact is moderated by firm size and board tenure. Using a sample of 363 IPO events within technology firms over 11 years, we find that higher board diversity is associated with better post-IPO performance; however, a larger firm size and longer board tenure decrease the value created by board diversity. The findings are robust to alternative measures of performance and board diversity. Our study contributes to the literature by demonstrating the significant impact of board diversity on the performance of technology IPO firms as well as explaining the conditions under which boards effectively execute their resource dependence roles.

Post-IPO cash flow operating efficiency analysis of Borsa Istanbul firms

Purpose- Companies can offer their shares to the public through the capital increase method, the sale of existing shareholders’ shares method or a mixed method where both are combined. The aim of the study is to examine the post-IPO performance of 78 selected companies that were offered to the public in Borsa Istanbul during the period of 2005-2018, according to the public offering method. In the study, the efficiency ratios of cash flows obtained from the operations related to sales, assets, equity and total liabilities were used as the operating performance measure. Methodology- The cash flow efficiency of the companies whose shares are publicly offered by using the capital increase method, the sale of existing shareholders’ shares method or the mixed method before the public offering and after the public offering was compared by using non-parametric tests. Findings Compared to the IPO year and the year before the IPO, companies that applied rights issue and mixed methods have shown significant improvements in post-IPO cash flow efficiency. It is observed that post-IPO cash flow efficiency ratios deteriorated significantly in the sale of existing shareholders’ shares method. Conclusion- Improvement in cash flow ratios of the companies that applied capital increase and mixed IPO methods, can be evaluated that after IPO these companies effectively manage their IPO money and contribute to their operating performance. On the other hand, the decreases in the cash flow efficiency ratios of the companies that applied existing share sale method, where any cash inflow does not occur, can be associated with the earnings management activities of these companies during IPO process. Keywords: IPOs, operating performance, financial efficiency, nonparametric tests JEL Codes: C14, G10, G11, G32

Does ERM Sophistication Drive IPO Initial Performance in Emerging Market? Evidence from Malaysian Market

The escalation of complexity and multidimensional (internal and external) factors bring companies to a position where risk management should be of main concern. Enterprise Risk Management (ERM) adoption and the extent of ERM implementation is seen as a guaranteeing element to increase the value of the companies over the long term due to adequate risk awareness and risk management strategies in all relevant business functions. This study examines the extent of ERM implementation on the initial performance of companies in the Malaysian IPO market. Testing a sample of 105 Malaysian IPOs issued from January 2012 to December 2020 using a linear regression model, ERM sophistication is positively and significantly related to the initial performance of Malaysian IPOs, offering support to the proposition in this study. Equally important is the reciprocal of offer price, subscription ratio, and market condition, which are also significant factors in companies’ post-IPO performance. This study benefits the market regulators and investors on the importance of ERM sophistication to companies’ initial performance.

The greater the investor attention, the better the post-IPO performance? A view of pre-IPO and post-IPO investor attention

Post-IPO performance is a subject of concern in China’s registration system reform. IPOs in the registration system of the GEM and STAR Market between July 22, 2019, and October 31, 2020, are taken as samples to examine the impact of pre and post-IPO investor attention on post-IPO performance. The findings are as follows: (1) 60-day and 120-day BHARs are negative; (2) the longer investors purchase new shares and hold them, the greater their losses; (3) pre-IPO investor attention has a negative impact on short-term post-IPO performance; (4) post-IPO investor attention and negative posts have a negative impact on post-IPO daily returns; and (5) the impact is non-linear and it gradually increases with the increase in post-IPO investor attention. This study has implications for investors, regulators, and policymakers who can contribute to the healthy and stable development of China’s capital market and the smooth implementation of the registration system reform.

The Post-IPO Performance of Private Equity Backed Firms during the Great Recession

We examine the performance of PE-backed firms following their IPOs during the expansionary period of the early 2000s and their performance during the “great recession.” We employ a control group using multi-digit NAICS codes, which allows us to match firms much more closely than prior studies. The results during the market expansion of the early decade parallel those of the existing literature, showing PE-backed firms perform as well or better than non-PE-backed firms. However, while those studies conclude that IPOs are generally a positive addition to the market and its investors, we show their performance is significantly worse than their non-PE-backed peers during the great recession, suggesting the success of these firms is particularly dependent on the state of the economy.

The impact of regional economic incentives on underwriters' market share in China

PurposeTo examine whether and how the different levels of regional economic incentives would have an effect on underwriters' market share in general.Design/methodology/approachDrawing on Chinese IPO firms during the period 2006-2016, this study examines the impact of different levels of regional economic incentives on underwriters' market share.FindingsThe authors find that regional economic incentives have a positive impact on underwriters' market share and that local economic incentives have a significantly stronger impact than central economic incentives. Furthermore, the authors find that IPO firms with underwriters driven by regional economic incentives experience worse post-IPO performance than firms with underwriters driven by central economic incentives, which do not experience a significant decline in post-IPO performance.Originality/valueTaken together, the authors’ findings are consistent with the notion that performance assessment motivates officials at various levels of government to bring companies in their jurisdiction to the IPO market prematurely. In addition, the results indicate that central economic incentives play a significant role in driving China's macroeconomic development and market-oriented system reforms. As such, they are one of the major driving forces behind China's market-oriented system reforms.

The effect of trademark breadth on IPO valuation and post-IPO performance: an empirical investigation of 1510 European IPOs

Trademarks differ in breadth and can cover a wide range of categories of goods and services. We draw on real options theory and argue that greater trademark breadth constitutes a valuable real option that is associated with higher firm valuation and performance. We analyze a sample of 1510 firms that went public in Europe between 2002 and 2015 and find a positive effect of trademark breadth on initial public offering (IPO) valuation and post-IPO performance. We implement a contingency analysis to contrast real options and signaling theory and find stronger support for the real options perspective.

Venture Capital Investments and the IPO performance of Chinese Firms

Purpose - The purpose of this study is to examine the effect of VC investment on the IPO and post-IPO performance of Chinese firms. Design/methodology/approach - By utilizing CSMAR and VentureXpert database, we construct a firm-year panel data covering all listed firms in the Chinese stock market from 2006 to 2018. Findings - First, we find that VC-backed firms are significantly less underpriced than non-VC-backed firms. Our results show that the initial IPO-day return of VC-backed firms is 0.16% lower than that of non-VC-backed firms. Next, we find that VC-backed firms demonstrate significantly worse operating performance than non-VC-backed firms after the IPO. In the next three years following the IPO, VC-backed firms underperform non-VC-backed firms by 0.4% in terms of ROA and by 0.6% in terms of ROE. Research implications or Originality - Our results support the Grandstanding Hypothesis, among several competing hypotheses regarding the effect of VC investment, which suggests that VCs window dress their IPO firms for their early exit at the expense of a poor operating performance of the IPO firms after going public.

Effects of Venture Capital Mega-Deals on IPO Success and Post-IPO Performance

Venture capital financing rounds with transaction volumes of 100 million US dollars or more have become an integral part of the US venture capital market within the last decade. We aim to determine whether such mega-deals are a quality signal for equity investors in the event of an IPO. Based on a sample of 364 US IPOs, we find that companies that have received a venture capital mega-deal perform, on average, superior IPOs and exhibit favorable post-IPO performance.

Trust, politics and post-IPO performance: SOEs vs. the private sector

This paper empirically investigates the role of social trust in the long-term performance of the initial public offerings (IPOs) in China, controlling for the formal institutional environment. We find that privately owned or smaller IPO firms experience significantly better post-IPO performance when they are incorporated in regions with more social trust. The state-owned and bigger IPO firms, on the other hand, experience better long-term post-IPO performance when they are incorporated in regions with stronger formal institutions (e.g. court enforcement and contract holding). Political pluralism turns out to benefit all IPOs in the long term. In addition, our evidence shows that stronger social trust substitutes for the quality of court enforcement but complements the role of contract holding. These results are robust after controlling for alternative definitions of ownership, outliers, non-linear effects of institutions, and the potential endogeneity of institutions in the model.

TMT functional complementarity and post-IPO performance: Evidence from the U.S. biotechnology industry

Drawing insights from the resource dependence and the upper echelons theories, this study examines how top management team (TMT) IPO reconfiguration – the managerial change between immediately before and after an initial public offering (IPO), affects firm performance in the post-IPO years. We investigate this through the lens of TMT functional complementarity - the degree of differing functional knowledge held by the firm's TMT in the pre-and post-IPO stage. We argue that TMT functional complementarity positively affects firm post-IPO performance. Further, this relationship is positively moderated by executive managerial discretion, measured by CEO duality and TMT insider board membership. We test our model using a sample of 250 US biotechnology firms that went public from 1991 to 2019, and the empirical results largely support our hypotheses. This study contributes to the literature of upper echelons, technology-based ventures, and IPO firms.