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IPO characteristics of index firms

Gonul Colak (Department of Finance, Florida State University, Tallahassee, Florida, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 12 October 2012

Abstract

Purpose

The purpose of this paper is to investigate the initial public offerings (IPOs) of the firms that are eventually included in one of the S&P 400, the S&P 500, or the S&P 600 Indices. Do these firms have very different IPO features than the rest of the IPOs?

Design/methodology/approach

The control sample is formed of IPOs that are not included in the corresponding index, and the IPOs that end up in each S&P index are compared to this control sample. Logistic regressions are utilized to estimate the odds of inclusion into one of these indices.

Findings

The author finds that the IPO features, such as underpricing, offer price, underwriter's reputation, venture capital presence, and so on, are found to be substantially different for the index samples. The index firms are found to be “superstars” that deliver extremely high long‐run returns between their IPO date and their index inclusion date. The above results suggest that the quality of index firms has a persistent component to it that can be detected even during the IPO process. After estimating the determinants of the index inclusion, the author discovers that factors implying lower asymmetric information about firm's business (such as, the firm being a spinoff, or being certified by a venture capitalist or a prestigious underwriter, etc.) increase its odds of inclusion.

Originality/value

The paper proposes and tests two new hypotheses related to inclusion into an S&P index. Discoveries made in this paper can help someone recognize which IPOs could become “superstars” that end up in an S&P index.

Keywords

Citation

Colak, G. (2012), "IPO characteristics of index firms", Managerial Finance, Vol. 38 No. 12, pp. 1134-1159. https://doi.org/10.1108/03074351211271265

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited