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21 – 30 of over 2000Reviews previous research on initial public offering (IPO) pricing and performance, classifying it by six hypotheses which are not mutually exclusive. Uses 1990‐1997 data on IPOs…
Abstract
Reviews previous research on initial public offering (IPO) pricing and performance, classifying it by six hypotheses which are not mutually exclusive. Uses 1990‐1997 data on IPOs on the Istanbul Stock Exchange to test these hypohteses, explains the methodology and presents the results, which show initial abnormal returns (realized by investors), but no long run underperformance of the market. Analyses the factors affecting short and long run IPO returns, considers consistency with other research and supports the winner’s curse and the fads hypotheses. Concludes that initial abnormal returns are due to both deliberate underpricing and overvaluation by investors’ and that factors which decrease uncertainty lead to lower returns.
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Poonam Mulchandani, Rajan Pandey, Byomakesh Debata and Jayashree Renganathan
The 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…
Abstract
Purpose
The 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/approach
The 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.
Findings
The 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/implications
This 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/value
According 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.
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This study examines the price performance of Greek IPOs in the period 1993‐1997. The Greek IPO market presents several particularities in respect to regulation and procedural…
Abstract
This study examines the price performance of Greek IPOs in the period 1993‐1997. The Greek IPO market presents several particularities in respect to regulation and procedural arrangements that make its study interesting in the context of the international evidence regarding IPO price performance. We find that Greek IPOs had on average large positive initial returns, an evidence of under pricing. This evidence is also supported by the positive one‐year returns in relation to offer prices. Returns computed one year after listing in relation to the first trading day price are positive, inconsistent with international evidence. Annual analysis reveals, however, differential patterns in price behavior.
Sheena Chhabra, Ravi Kiran, A.N. Sah and Vikas Sharma
The purpose of this paper is to focus on examining the first day returns of initial public offerings (IPOs) and the role of information on their performance. The study tries to…
Abstract
Purpose
The purpose of this paper is to focus on examining the first day returns of initial public offerings (IPOs) and the role of information on their performance. The study tries to optimize the returns of the new issues during 2005-2012 with risk as a constraint.
Design/methodology/approach
The initial returns are measured through the market-adjusted excess return and the risk associated with the new issue is measured through underwriters’ reputation. The returns have been optimized through a mixed integer linear problem using the Maple software.
Findings
The previous studies show that various informational variables affect the listing day returns significantly. The results of the present study indicate that the mean of initial returns for IPOs during 2005-2012 is 18.03 and the mean risk for these issues is 0.46. The findings also suggest that the optimal returns are obtained in the pre-recession era (2005-2008) and the value for the same is 50.02 percent.
Originality/value
The current study contributes in the investment decisions for global investors as every investor wants to maximize his/her returns. The optimal returns with risk as a constraint will help the investors in improving their investment decision as a prudent investor does not aim solely at maximizing the expected return of an investment but is also interested in optimizing with the minimization of risk.
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The purpose of this paper is to examine the underpricing of initial public offers (IPOs), which were announced by Indian firms for the period 2007 through 2009. It is motivated by…
Abstract
Purpose
The purpose of this paper is to examine the underpricing of initial public offers (IPOs), which were announced by Indian firms for the period 2007 through 2009. It is motivated by the fact that a well-developed capital market is a function of economic growth and a reflection of the financial system. Thus, this study investigates aftermarket pricing performance of IPOs during the recent global financial crisis.
Design/methodology/approach
This paper studies the underpricing of 133 IPOs in three groups, namely, house-full collections, short-run and long-run periods. To do so, it uses event study method to observe underpricing, which is examined in various window periods. Further, industry- and year-wise offers are analyzed and interpreted. Accordingly, hypotheses are being developed and tested through a static “analysis of variance”.
Findings
The study explores that post-listing IPOs assure positive returns in the short run, but they tend to plunge and become negative in the long run. In particular, highest returns have been observed in the first week of post-listing.
Research limitations/implications
Limitations include, the study does not compute market-adjusted returns to find abnormal performance of stocks, and does not apply regression statistic to examine the factors that affect underpricing.
Practical implications
Eventually, conclusions are drawn from India–international results, and thus it would add some new insights on investor perspectives (e.g. price signalling) to the existing IPOs literature, especially from Asian markets context.
Originality/value
This paper is an original research that examines the underpricing of Indian IPOs during the recent financial crisis, particularly in three groups: house-full collections, short-run and long-run periods.
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SHANTARAM P. HEGDE and SANJAY B. VARSHNEY
We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary…
Abstract
We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.
Winston Sahi and Stephen L. Lee
Presents empirical evidence for a sample of 48 UK property company initial public offerings over the period 1986 to 1995. Several conclusions can be drawn. First, property…
Abstract
Presents empirical evidence for a sample of 48 UK property company initial public offerings over the period 1986 to 1995. Several conclusions can be drawn. First, property companies in general show a significantly positive average first day return. Second, property investment companies’ average first day return is not significantly different from zero. Third, property trading companies’ average first day return is significantly positive. Fourth, the higher average first day return of property trading companies over property investment companies is significant.
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The last two years are characterized by record numbers of initial public offerings (IPOs), foreign investor abstinence and rising retail investor appetite in the Turkish stock…
Abstract
Purpose
The last two years are characterized by record numbers of initial public offerings (IPOs), foreign investor abstinence and rising retail investor appetite in the Turkish stock market. This study aims to investigate whether retail investor dominance coupled with foreign investor aversion has significant impact on initial and short-term returns.
Design/methodology/approach
The research covers the population of 188 companies going public at Borsa Istanbul from 2010 to the end of 2021. Three hypotheses are developed and tested by means of ordinary least squares and Tobit regressions to examine the association between investor allocations and returns. A new measure for retail investor trade size, average retail investment per capita (ARI) is utilized to explain the linkage between retail investor appetite and short-term returns. Two-stage least squares and Heckman selection regressions are employed for robustness tests to address potential endogeneity.
Findings
Pandemic IPOs provide significantly larger short-term returns than pre-pandemic IPOs measured up to one month. Underpricing during the pandemic is not significantly greater due to 10% daily price limit, which leads to a gradual release of retail investor appetite and increase in stock prices in the short term. Retail investors control 66% of the market during the pandemic compared to 35% before, while foreign institutional investor market share declines from 53% to 6%. Average retail investor number in an offering increases by 55.4-fold during the pandemic, resulting in substantially smaller allocations to the average individual investor. Greater returns during the pandemic are associated with smaller retail investment per capita, while domestic institutional investment is associated with lower returns as typically expected from institutional investors, although its significance disappears after controlling for potential endogeneity.
Research limitations/implications
This study investigates returns up to one month. To better understand whether short-termism of retail investors and recent foreign investor aversion have detrimental effect on companies, and on the market as a whole, longer-term studies are needed. This is not possible at the current stage since not enough time has passed.
Practical implications
This research is relevant to emerging market investors and companies due to the ongoing foreign investor aversion and fast-changing market conditions. The research cautions market participants against the short-termism of retail investors and urges policymakers to regain investors with longer investment horizons.
Social implications
Many newcomer retail investors are in the stock market due to lack of more profitable alternatives in Turkey. Although their participation is accompanied by larger short-term returns for the time being, the current momentum is unlikely to last long as the pandemic ends, and interest rates around the world begin to be raised. The study urges small investors to invest in a more informed manner and aim for longer time horizons, as it may not be possible to make a quick profit in the stock markets in the near future.
Originality/value
This is the first study to investigate changing investor profile in emerging markets and its impact on returns following pandemic declaration. The question is important because the investor composition affects the investment horizon in the market.
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Ali Albada, Othman Yong and Soo-Wah Low
The purpose of this paper is to examine whether initial public offering (IPO) over-subscription is a function of firm’s prestige signals conveyed by third parties with…
Abstract
Purpose
The purpose of this paper is to examine whether initial public offering (IPO) over-subscription is a function of firm’s prestige signals conveyed by third parties with reputational capital such as underwriter, auditor and independent non-executive board member.
Design/methodology/approach
The relationship between prestige signals and over-subscription ratio (OSR) of IPOs is analysed using a cross-sectional regression based on a sample of 393 IPOs issued between January 2000 and December 2015.
Findings
The results indicate that IPOs underwritten by reputable underwriters have lower OSR than those underwritten by non-reputable underwriters. While issuer engages reputable underwriter to certify firm quality to reduce information asymmetry, the action brings with it lower initial returns for its IPO. Investors interpret the signal conveyed by issuer’s choice of underwriter from under-pricing perspective and respond accordingly by reducing IPO demand. This implies that investors regard under-pricing as a more valuable signal than firm quality signal associated with underwriter reputation. The findings also indicate that over-subscription increases in IPOs that have above average initial returns and higher institutional participation. Issuing firms that go public in a period of high IPO volume are associated with low OSR.
Originality/value
This is the first paper to examine the relationship between the prestige signals and OSR of IPOs in the Malaysian context.
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Ali Albada, Soo-Wah Low and Othman Yong
The purpose of this paper is to examine the effects of prestige signals measured by the reputations of the underwriter, auditor and board size on the heterogeneity of investor…
Abstract
Purpose
The purpose of this paper is to examine the effects of prestige signals measured by the reputations of the underwriter, auditor and board size on the heterogeneity of investor belief about the true value of IPO in the Malaysian IPO market.
Design/methodology/approach
This study employs a sample of 281 IPOs issued between January 2000 and December 2015. The relationship between prestige signals and investor heterogeneity, measured by first-day price range of IPOs, is analysed using cross-sectional regression and quantile regression technique.
Findings
Of the three prestige signals, the findings show that only underwriter reputation and board size have significant negative relationships with IPO first-day price range. This implies that IPOs underwritten by reputable underwriters and issuing firms with larger board members have lower heterogeneity of opinion among investors. The findings also show that underwriter and auditor reputations have negative relationship with IPO initial return, suggesting that these prestige signals help to reduce IPO under-pricing, which is a direct cost of raising capital for the issuing firm. Furthermore, the results indicate that offer price, initial return, over-subscription ratio and private placement are associated with higher first-day price range. However, the findings on offer size suggest that larger IPO offer size is associated with lower first-day price range. Overall, the findings suggest that firm’s prestige signals reduce opinion heterogeneity among investors and that lower investors’ heterogeneity leads to lower IPO under-pricing cost for issuing firms.
Originality/value
Despite the importance of underwriter, auditor and board member reputations in signalling firm’s quality and reducing the level of information asymmetry of the listing firm’s issues, research on the effects of prestige signals on investor heterogeneity remains unexplored. This study investigates the role of prestige signals in influencing investors’ heterogeneity in Malaysia. The authors conjecture that underwriter, auditor and board member with higher reputations are associated with lower levels of opinion heterogeneity among IPO investors.
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