Returns Of Initial Public Offerings Research Articles

Assessing the Performance of Initial Public Offerings (IPOs) in Indian Stock Markets: A Longitudinal Study from 2014-2023

This research investigates the performance of Initial Public Offerings (IPOs) in the Indian stock market over a decade (2014-2023). The study aims to assess both short-term and long-term IPO returns and the factors influencing their performance. Using a quantitative, longitudinal approach, data was collected from the National Stock Exchange (NSE) of India, covering 500 IPOs. The analysis examines short-term listing day returns and long-term performance up to five years post-IPO, focusing on variables like firm size, market sentiment, and sector-specific dynamics. The findings reveal substantial variations in IPO performance, with average listing day returns ranging from 18.98% to 26.35%, particularly peaking during market volatility in 2020. However, long-term returns exhibit a decline, with many IPOs underperforming five years after listing. Regression analysis shows that firm size and market sentiment significantly affect IPO performance, with larger firms and favorable market conditions driving better outcomes. The technology and pharmaceutical sectors outperformed, while real estate IPOs lagged. The study highlights the importance of due diligence for investors and the need for continued regulatory reforms to improve market transparency and efficiency. This research fills a gap in the literature by providing a comprehensive, decade-long perspective on IPO performance in India.

Social Media Emotions and IPO Returns

AbstractI explore how investor emotions on StockTwits and Twitter affect initial public offering (IPO) returns. High pre‐IPO enthusiasm is linked to greater initial returns but eventual long‐term underperformance. IPOs with strong early excitement average a 29.73% initial return, but suffer a −8.22% long‐term industry‐adjusted return, showing a gap between early optimism and later results. Analysis of investor communication reveals that financial language and existing information influence these outcomes. There is a growing caution among frequent IPO investors, likely due to past experiences. Despite this, firms with initial high optimism continue to attract postlaunch interest, contradicting their long‐term underperformance.

Trade secret laws and initial public offering underpricing

This paper examines the impact of trade secret laws on the underpricing of initial public offerings (IPOs) in the United States, where we focus on the Uniform Trade Secret Act and/or the inevitable disclosure doctrine. Given that trade secret laws help firms protect their know-how in the form of trade secrets, we propose that trade secrets protected by these laws may result in increased corporate opacity, leading to greater IPO underpricing. Empirically, the average first-day returns of IPOs in states with trade secret laws are 12.7% higher than those in states without such laws. Using the information disclosed in the 10-K report on whether the firm owns trade secrets, we suggest that the existence of trade secret laws enhances the protection effect of firm maintenance of trade secrets, which leads to greater IPO underpricing. Further analyses show that the effect of trade secret laws is reinforced for IPO firms operating in complex industries, IPO firms with R&D investments, and large IPO firms, suggesting that trade secret laws increase the difficulties investors face in assessing the intrinsic value of such firms.

Performance of IPOs - A Detailed Analytical Study of IPOs During 2015-20

Initial Public offering (IPOs) are generally a first time offering of a company’s stock to the public. IPOs have had a strong significance all over the world as they act as an essential source of capital for companies to speed up their growth trajectory, as these funds help in the implementing new measures and strategic initiatives necessary for an unperturbed growth. This study includes the analysis of the performance of IPOs for the year [ 2015-2021] in detail and compares it with the short-term performance of a few select IPOs for the same range so as to understand which IPOs returns were more and is there any common factor leading to the same. The sample for this study includes all the IPOs listed in the Indian market for the selected year range. The resulting parameters of this study help in deriving the factors that led to the success or failure of IPOs in the market and provide a better understanding about the important factors involved throughout, Thus the results showcase factors such as brand awareness, Product placement and business models along with Investor sentiments are interconnected and have an effect on the performance of the IPOs. On the contrary, these findings help assess the current aspects of opportunities that lie in the IPO market with respect to long-term investments.

Terror threat and investor sentiment: International evidence

Terrorism remains a persistent threat to global peace and stability, but its impact extends beyond the realm of security. We examine the impact of terrorism on the important capital market transaction of initial public offerings (IPOs). Consistent with the notion that terrorism dampens investor sentiment, we reveal robust evidence that first-day returns are lower in countries with higher Global Terrorism Index scores. Examining this issue at an international scale allows us to advance the literature in two important ways. First, we provide direct evidence that greater terror threat is associated with lower investor sentiment. Second, we determine that strong democratic principles, high-quality governance institutions, and transparent accounting disclosures moderate the negative impact of terror threat on investor sentiment and IPO returns.

The impact of IFRS mandate and institutional governance on underpricing and aftermarket performance of IPO shares in Turkey

Along with the European Union, policymakers in Turkey passed a regulation that mandated all listed companies use the International Financial Reporting Standards (IFRS) starting from January 1, 2005. Using a before-after estimation design, this study examines the impact of this policy change and the role of institutional governance quality on the initial trading day and aftermarket trading performance of initial public offerings (IPO) in Turkey from 1998 to 2019. The results show that the IFRS mandate does not affect initial trading day returns but improves the aftermarket trading performance of IPO shares. This finding may imply that Turkey’s secondary market also suffers from information asymmetry and that IFRS-compliant reports help alleviate this problem. Furthermore, none of the six institutional governance quality measures tested loaded significantly against initial trading day or long-term returns. However, when examined together, two institutional measures with a negative value, voice and accountability, and political stability, offset the positive effect of the IFRS-compliant reporting on long-term IPO returns, providing support to the premise that institutional quality matters for realizing the economic benefits of the IFRS mandate.

Investor attention and IPO returns: evidence from Indian markets

PurposeThe regulatory design of Indian stock market provides us with the opportunity to disaggregate initial returns into two categories, i.e. voluntary premarket underpricing and post market mispricing. This study explores the impact of investor attention on the disaggregated short-run returns and long-run performance of initial public offerings (IPOs).Design/methodology/approachThe study employs regression techniques on the sample of IPOs listed from 2005 to 2019. It measures investor attention with the help of the Google Search Volume Index (GSVI) extracted from Google Trends. Along with GSVI, the subscription rate is used as a proxy to measure investor attention.FindingsThe empirical results suggest a positive and significant relationship between initial returns and investor attention, thus validating the attention theory for Indian IPOs. Furthermore, when the returns are analysed for a more extended period using buy-and-hold abnormal returns (BHARs), it was found that price reversal holds in the long run.Research limitations/implicationsThis study highlights the importance of information diffusion in the market. It emphasizes the behavioural tendency of the investors in the pre-market, which reduces the market efficiency. Hence, along with fundamentals, investor attention also plays an essential role in deciding the returns for an IPO.Originality/valueAccording to the best of the authors’ knowledge, this is one of the first studies that has attempted to explore the influence of investor attention and its interplay with underpricing and long-run performance for IPOs of Indian markets.

Factors Affecting the Initial Return of Initial Public Offerings (IPOs) and IPO Underpricing in the Colombo Stock Exchange

The initial public offering is an important milestone for a company; however, this can be also turned into a reason which causes great wealth loss as well. The purpose of this study is to identify the factors affecting IPO initial return and examine the level of underpricing that prevails in the Colombo Stock Exchange (CSE). The study considers 68 IPOs from 2006 to 2018. The selected factors for the study are ASPI Return, Sector Price/Earnings ratio, Age, Earnings Per Share, Debt Ratio, Net Asset Value, Return on Asset, Price/Earnings Ratio, Debt/Equity Ratio, Offer Price, and Over Subscription Rate. Multiple regression results reveal that ASPI return and over-subscription rate are positively influenced by market-adjusted initial return (MAIR) and offer price is negatively affected. Underpricing analysis revealed that the MAIR and the prevailing level of underpricing is raw initial return equal to 14% and market-adjusted return is 18%. The beverage, food, and tobacco sector, Banking, Finance, and Insurance sector, and diversified holding sector are identified as highly underpriced sectors of CSE. It is recommended that Investors must consider capital market variables and IPO variables for IPO investment decisions regardless of the financial indicators of the company.

Innovation Potential, Insider Sales, and IPO Performance: How Firms Can Mitigate the Negative Effect of Insider Selling

At the time of an initial public offering (IPO), firms seek to maximize their stock market value. The authors theorize and show that a firm's innovation potential—firm outputs and activities that contribute to the development of future new products—can be used by the managers of IPO firms as a credible signal of the quality of the firm. Using a sample of 370 IPO firms from the consumer-packaged goods and pharmaceutical industries, and three metrics of innovation potential, the authors show that firms’ innovation potential is (1) positively associated with the initial value of the IPO and with the first-day IPO returns and (2) negatively associated with the extent to which insiders sell their shares at the time of the IPO. The effectiveness of the three metrics of innovation potential as a signal of firm quality varies: patents have a stronger impact on insider sales than preannouncements and generic references to future innovation, while preannouncements have the strongest impact on first-day IPO returns. The article presents a nuanced view of the extent to which various firm stakeholders consider information about firms’ innovation potential to be a credible signal that reduces the adverse selection present in IPO deals with insider sales.

Are IPOs underpriced? Empirical evidence from Saudi Arabia

nderpricing of initial public offerings (IPOs) is a common phenomenon that widely studied over many periods and a broad range of countries. This paper examines the extent of underpricing of IPOs in Saudi Arabia by using the data of 44 IPOs listed on the Saudi Stock Exchange from January 2010 till October 2021. We found that IPOs on average were underpriced by 49.4%. The stepwise multiple regression results showed that the number of individual subscribers, the level of over-subscription by individuals, and the firm size have a significant relationship with IPO returns. The outcomes are hence consistent with the prediction of ex-ante uncertainty and the winners’ curse hypothesis.

Reassessing the Long-Run Abnormal Performance of Jordanian IPOs: An Event Study Approach

Abstract This paper examines and reviews the fundamental challenges that academicians face when using the event study methodology to assess the long-term consequences of financial events on the economy and to describe market reactions. Numerous studies have demonstrated that businesses can experience abnormal returns from 1 to 5 years after major financial events. Also, this paper investigates the long-run price performance of initial public offerings (IPOs) in Amman Stock Exchange (ASE). The sample period expands from 2018 to 2022. Various findings are obtained by employing several analytical methods. First, long-run price performance of IPOs is negative, and a strong evidence shows that the long-run performance is sensitive to the benchmark employed. To assess the long-term performance of IPOs, I used both cumulative abnormal returns (CAR) and buy-and-hold abnormal returns (BHAR) as aggregated models. I explained the methodology which is adopted in this study in detail for the event–time approach. However, I used the crucial values for the skewness-adjusted t-statistic to infer statistical tests. Even though BHAR provided weaker results, all methods indicated negative long-run abnormal returns for IPOs. Yet this performance varied when comparing the performance utilizing ASEI, Fama–French three-factor (FF3F), and matching firm (MF) as benchmarks.

Underpricing or Overvaluation? Theoretical Review of Initial Public Offering Phenomenon

The abnormal initial return of Initial Public Offerings (IPOs) has become an interesting financial phenomenon that attracts many researchers’ interest. This phenomenon has become more attractive because IPOs have increased during the pandemic since 2021. This study investigates whether the positive initial performance of IPO stock led to underpricing or overvaluation in a broader context in the form of literature reviews. After elaborating and analyzing several related studies, theories and empirical research in the literature, this research finds that the aftermarket has a lower performance than the initial one. It shows that abnormal initial returns tend to be caused by investors’ overvaluation and overreaction instead of underpricing.

Does Regulation Impact the Initial Returns of Initial Public Offerings? Evidence from Indian Capital Market

Regulations are put in place in the capital markets to protect the interests of investors while promoting companies to actively participate in the capital markets. This multidisciplinary study concentrates on analysing the impact of one such regulation, based on entry norms, on the initial returns of book-built IPOs in the presence of firm-related and issue-related control variables, thereby facilitating decision-making to issuers and investors. Using various parametric and non-parametric tests on 259 IPOs issued on Indian Stock Exchanges during financial year 2009–2010 to 2019–2020, it can be concluded that Indian IPOs are underpriced on an average, irrespective of the entry norm followed. Further, firms entering through either of the entry routes, that is, profitability route or Qualified Institutional Buyer Route have significant differences in age, listing delay, type of sale, rank of lead managers and industry. Entry norm is established to have a negative yet insignificant role in determining the initial returns, while oversubscription is the only variable with a positive and significant impact on the initial returns of the issue. JEL Codes: G10, G14, G18, G23, K22

The Effects of Social Media Attention and Sentiment on Initial Public Offering Returns

Going public is a monumental step for many companies. Not only does it increase a company's legitimacy in the business community, but it also gives opportunities for them to harness significant amounts of investment capital. However, entrepreneurs and investors often face uncertainty due to the unpredictable nature of initial public offerings (IPOs). This study evaluated the impact of the amount and sentiment of Twitter activity on stock returns using data from domestic companies who went public from June 1, 2020 - May 31, 2021. Overall market behavior, company size, and community population demographics and social economic status of the companies' headquarters locations were controlled. The analyses showed that Twitter activity is associated with higher returns during relatively long-term time frames. The results are relevant for companies and potential IPO investors to predict and maximize their profits in the market. They also open opportunities for future research to investigate more in-depth regarding social factors in relation to IPOs.

FACTORS AFFECTING ABNORMAL STOCK RETURNS ON LONG-TERM PERFORMANCE OF INITIAL PUBLIC OFFERING (IPO) (A Literature Review)

The average stocks return of the initial public offering (IPO) in the US stock market was - 29.13% at the end of the third year after the IPO (Ritter, 1991). The conclusion is that the Underperformed phenomenon is influenced by the volume of trade and only occurs in the non-financial sector (Ritter, 1991). Underperformed is a stock return of initial public offerings that have lower performance compared to the market return. Bessler and Thies (2007) stated that the year of going public is the time period of the initial public offering (IPO). There is a time variation in the pattern of benefits, it raises a question of whether companies can maximize the value and amount of funds acquired. In investing, investors consider the return and risk, the expected results of the investment will be realized after a certain period of time and during this period there is a risk of the investments made. The aim of this study is to analyze the factors that affect Abnormal Return on long-term stock performance after 36 months of the IPO. The independent variables in this study consist of Benchmark, Money Raised, Market Value, and Magnitude of Underpricing. The dependent variable is the abnormal return on long-term stock performance after 36 months of the IPO. The samples used in this study were the non-financial companies on 2010-2020 period as many as 54 non-financial companies using purposive sampling method. The analysis technique used was multiple linear regression analysis and performed classical assumption test which includes normality test, multicollinearity test, autocorrelation test, and heteroscedasticity test.

IPO Valuation and IPO Inter-Industry Effects

This study examines the valuation effects of initial public offerings (IPOs) and intra-industry effects of IPOs in Turkey between 2010 and 2018. The purpose of this study is to find out whether initial public offerings are overvalued and whether they impact the pricing of industry peers. First, the valuation of IPOs is investigated. Price-to-value ratios of Turkish IPOs are compared with sector average ratios to determine whether IPOs are overvalued. Turkish IPOs are not overvalued against industry rivals’ price-to-value ratios based on sales and earnings-before-interest-taxes-depreciation-and-amortization (EBITDA) and earnings. Similarly, valuation based on price-to-value ratios is not related to initial pricing of IPOs. Second, the intra-industry effects of IPOs are investigated. Sector-adjusted abnormal returns of IPOs are compared to market-adjusted abnormal returns. The results are not affirmative: There is no statistically significant difference between the two abnormal returns. Turkish IPOs do trigger significant price declines on rival companies’ stocks. Altogether, the findings indicate that there is neither overvaluation of IPOs nor intra-industry effects over rival companies. Companies do not time the market based on industrial overvaluation. This may indicate market efficiency or lack of competition in the IPO market.

Initial Return of Initial Public Offerings (IPOs) and IPOs Underpricing: Evidence from Sri Lanka

Initial Return of Initial Public Offerings (IPOs) and IPOs Underpricing: Evidence from Sri Lanka

Does asset location and concentration explain REIT IPO valuation?

AbstractFollowing recent developments in the asset pricing literature on geographic concentration, we complement classic theories based on information asymmetry and explain the short‐run performance of real estate investment trust (REIT) initial public offerings (IPOs) through an investor base mechanism. We analyze the U.S. market and show that issuers are more likely to underprice when a REIT is more geographically concentrated. In particular, by adopting an identification strategy of pre‐ and post‐IPO returns, we find evidence for an investor base channel rather than a diversification discount channel. In addition, geographic portfolio concentration has a stronger impact on the initial returns of REIT IPOs than property type concentration. Finally, we find that lower deadweight costs at the time of an IPO weaken the influence of geographic concentration on initial returns. Our results are robust to the firm's geographic concentration in economically defined regions, different measures of deadweight costs, the control of information environment of the portfolio and headquarters markets, and to controlling for the REIT's property type focus.

The long-run performance of SME IPOs in India: empirical evidence from Indian stock market

PurposeThe purpose of this paper is to study the pattern of long-run performance of small and medium enterprises (SMEs) initial public offerings (IPOs) and examine the firm- and issue-related determinants of long-run performance of SME IPOs in India.Design/methodology/approachThe 3 6, 9 and 12 months share returns of Indian SME IPOs is studied using event time methodologies, i.e. buy and hold returns, cumulative abnormal returns and wealth relatives on a sample of 375 SME IPOs issued during February 2012 to May 2018. Additionally, ordinary least square regression has been used to investigate the determinants of long-run performance of SME IPOs on a reduced sample of 104 because of non-availability of price observations.FindingsThe findings reveal that Indian SME IPOs exhibit long-run overperformance contradicting the international evidences of underperformance, and this overperformance is significantly evident using buy and hold abnormal return (BHAR). Furthermore, based on the divergence of opinion hypothesis, fads theory and windows of opportunity hypothesis, the results reveal that on one hand, issue size and oversubscription negatively affect BHAR, while on the other hand, auditor reputation, underwriter reputation, hot market, underpricing, inverse of issue price, profits prior to listing positively affect long-run performance. However, firm age, firm size, debt equity ratio, volatility and long-run performance computed through BHAR lacks significant relationship.Research limitations/implicationsThe study relied on event time methodology of measuring aftermarket performance of one year because of the limited availability of price offerings. Hence, the study could be extended to analyze aftermarket returns over a period of three to five years to enable reaching the vivid conclusions. Calendar time methodology may also be used to compute abnormal returns.Practical implicationsThe results based on the study provides an implication to the investors by providing them an opportunity to bank higher long-run returns by engaging in active and timely trading strategies. Nevertheless, the results also show that investors should be cautioned while taking investment decisions.Originality/valueThe study contributes to rising body of international literature by analyzing the larger and recent sample of IPOs issued from 2012 to 2018 listed on SME exchange.

Short-run performance evaluation of under-priced Indian IPOs

The under-pricing of Initial Public Offerings (IPO) speaks to one of the inconsistencies seen in essential markets (primary market) worldwide, however, the profundity and broadness of its shift from nation to nation. In this context, the study is a posteriori analysis of the short-run performance of Indian IPOs in the National Stock Exchange (NSE). The study aims to determine the relationship between the returns of IPOs and NIFTY50 (benchmark index) using correlation and regression analysis. To determine the performance of the IPOs, whether they are outperforming or underperforming using Wealth Relative Model. As the investors look for attractive returns through primary market opportunities, therefore, historical returns of trading days 1, 5, 10, 15 and 20 are taken into consideration. The study uses data of 114 Indian IPOs that were listed in the NSE during the period 2014–2018 as part of secondary data, however, a total of 71 under-priced IPOs listed in the NSE are utilized for analysis. The study concludes there is a significant under-pricing of IPOs with trading day 15th showing the highest initial returns.