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Article
Publication date: 7 March 2016

Bill Dimovski

A variety of papers have analyzed the underpricing of REIT IPOs or property company IPOs. The purpose of this paper is to compare the two sectors and examines differences…

Abstract

Purpose

A variety of papers have analyzed the underpricing of REIT IPOs or property company IPOs. The purpose of this paper is to compare the two sectors and examines differences in the underpricing of the two types of IPOs.

Design/methodology/approach

An OLS regression is used to identify factors influencing the underpricing of A-REIT and property company IPOs from 1994 until 2014.

Findings

This study finds that A-REIT IPOs have a significantly lower underpricing on average than Australian property company IPOs. The time taken to list appears to influence the underpricing of both A-REIT IPOs and property company IPOs, in that issues that are filled more quickly have higher underpricing but with the magnitude of the impact being less for A-REITs. The sentiment toward the stock market also appears to impact on the underpricing of A-REIT and property company IPOs again with the magnitude of the impact being less for A-REITs.

Practical implications

The paper provides information to new A-REIT and property company issuers, underwriters and investors.

Originality/value

The study is the first to compare and examine the differences in the underpricing of both REITs and property companies in the one country over the same time period.

Details

Journal of Property Investment & Finance, vol. 34 no. 2
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 5 July 2021

Waqas Mehmood, Rasidah Mohd-Rashid, Ahmad Hakimi Tajuddin and Hassan Mujtaba Nawaz Saleem

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Abstract

Purpose

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Design/methodology/approach

Besides the ordinary least square’s method, this study used quantile least squares as a robust approach and stepwise regression for further analysis to investigate the underpricing phenomenon in Pakistan. Data of 84 IPOs listed on Pakistan Stock Exchange from January 2000 to December 2018 were collected to determine the impact of Shariah-compliant status and Shariah regulation on IPO underpricing.

Findings

Results of the study show that Shariah-compliant status has a negative relationship but Shariah regulation has a positive relationship with IPO underpricing. Hence, it is contended that Shariah-compliant firms have lower asset volatility and uncertainty than non-Shariah-compliant firms because of less information asymmetry, resulting in lower underpricing. These Shariah-compliant firms provide signals of high-quality IPOs as they must comply with the strict guidelines issued by the Securities Exchange Commission of Pakistan in addition to being considered as amicable by investors. Further, this study suggests that investors are more attracted to Shariah-compliant firms than non-Shariah-compliant ones.

Research limitations/implications

This study’s offers limited consideration of nonfinancial and financial characteristics that could influence the decision of investors to subscribe to IPOs. Besides, future studies could consider the screening benchmarks; for instance, debt and cash may explain the intensity of IPO initial return in Pakistan.

Originality/value

The present work empirically investigated the influence of Shariah-compliant status and Shariah regulation on IPO underpricing in Pakistan’s IPO market, which has been scarcely covered in the existing literature.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 30 March 2021

Yuxin Wang and Guanying Wang

The purpose of this paper is to explore how the price limit policy implemented in 2014 affects initial public offering (IPO) underpricing and long-term performance in China.

Abstract

Purpose

The purpose of this paper is to explore how the price limit policy implemented in 2014 affects initial public offering (IPO) underpricing and long-term performance in China.

Design/methodology/approach

The data are the IPOs from Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) between 2004 and 2018. The data are firstly divided into the IPOs before the price limit policy and the IPOs after the price limit policy according to the time of issuance. Then the two groups are divided into 4 subsamples according to the market blocks and the P/E ratio. The authors use multiple regression models to explore the effect of price limit policy in each subsample.

Findings

The first-day price limit system for IPOs is similar to the upward fuse mechanism, the purpose of which is to suppress IPO underpricing. However, this study finds that the policy does not suppress IPO underpricing, but increases the underpricing rate in all subsamples. Besides, the long-term performance in each subsample is different from each other. Main Board stocks’ long-term performance is worse after the policy. The policy makes Small and Medium Enterprise Board (SME Board) and Growth Enterprise Market Board (GEM Board) stocks with high P/E ratios perform better in the long term. For SME Board and GEM Board stocks with low P/E ratios, the policy makes no significant effect.

Practical implications

Good policy intentions may sometimes lead to counterproductive effects. However, since the long-term performance of each subsample is different, it is difficult to judge whether the policy should continue to be implemented or cancelled. Implementing different policies for different subsamples may be a better way to solve this problem.

Originality/value

This paper contributes to the study of IPO underpricing and long-term performance from the perspective of price limit policy.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 1 January 2006

Yong Wang and Xiaotian (Tina) Zhang

Initial public offering (IPO) underpricing remains a puzzle after decades of investigation. The stock markets in emerging economies are attractive to international…

Abstract

Initial public offering (IPO) underpricing remains a puzzle after decades of investigation. The stock markets in emerging economies are attractive to international investors but their unique characteristics need to be examined. Chinese stock markets experienced much more significant IPO underpricing than most other stock markets in the world. This paper offers a two-period wealth maximum model to explain the strategic IPO underpricing by state owners. Given the fact that the entire IPO procedure, including IPO price, is regulated and controlled by state owners, we argue that state owners strategically underprice the IPO, because they care less about the IPO proceeds but more about the wealth gain after IPO. The empirical finding of a positive relationship between IPO underpricing and state ownership in Chinese stock market is consistent with the wealth maximization hypothesis of IPO pricing. The paper offers better understanding for IPO procedure of state-owned enterprises in emerging markets.

Details

Value Creation in Multinational Enterprise
Type: Book
ISBN: 978-1-84950-475-1

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Article
Publication date: 17 June 2008

Thomas Walker

We study the relationship between underwriter prestige, family control, and IPO underpricing in an international setting. Data are collected for 5,789 firms that went…

Abstract

We study the relationship between underwriter prestige, family control, and IPO underpricing in an international setting. Data are collected for 5,789 firms that went public across twenty‐five countries between 1995 and 2002. We find that non‐penny‐stock and non‐U.S. IPOs from countries where firms are predominately family‐controlled benefit from associations with well‐known investment bankers; i.e., these firms are less underpriced than similar firms from countries with a low level of family control. At the same time, our findings support prior evidence that suggests that underwriter prestige is positively related to underpricing in the U.S. IPO market. Family‐controlled firms should consider the findings of this study, which identifies factors that are associated with more successful IPO outcomes.

Details

Multinational Business Review, vol. 16 no. 2
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 3 April 2019

Thomas Heine Felix and Henk von Eije

The purpose of this paper is to analyze underpricing in initial coin offerings (ICO). It bridges the gap between findings in initial public offering (IPO) literature and…

Abstract

Purpose

The purpose of this paper is to analyze underpricing in initial coin offerings (ICO). It bridges the gap between findings in initial public offering (IPO) literature and empirical results from ICOs.

Design/methodology/approach

The sample set consists of 279 ICOs between April 2013 and January 2018. A regression analysis is performed with data from the ICOs.

Findings

The results show an average level of underpricing of ICOs of 123 percent in the USA and 97 percent in the other countries. The results for the US ICOs are significantly higher than for US IPOs on average and also higher than US IPOs at the beginning of the dot.com bubble. The authors also study the determinants of ICO underpricing. The authors use proxies based on asymmetric information from the IPO literature as well as ICO-related variables. First-day trading volume and a good sentiment on the ICO market go together with more ICO underpricing. Moreover, hot markets make first-day investors to benefit less. Finally, companies that use a large issue size or a pre-ICO (a sale of cryptocurrencies before the ICO) leave less money on the table.

Research limitations/implications

A first restriction is that the authors focus on ICOs and not on crowdfunding, though there are similarities in that both of them are novel ways to finance projects. A second restriction is that the authors had to decide on the definition of a listing day. Cryptocurrencies are traded on many exchanges, and if the exchange is tailored to the cryptocurrency itself, the data on, e.g., close prices are not necessarily to be trusted. The authors, therefore, decided to use close price data from coinmarketcap.com, which requires a listing on two exchanges. This choice implies that there may have been trades before the listing day itself. A third restriction arises from the relative newness of the ICO phenomenon. The authors gathered data on underpricing from coinmarketcap.com and combined that with project information from icobench.com. However, the data were not simply matched and they required manual adjustments based on several other sources. The authors hope that in due time data on ICOs will be as adequate as data on IPOs and that they become more readily available. It might help if regulators or the crypto community would institute publication requirements. Adherence to such requirements would also reduce the extent of fraud and of asymmetric information, so that solid issuers with good projects might benefit from less underpricing.

Practical implications

The research may help in reducing underpricing, as the authors find that issuers can reduce it by holding a pre-ICO and by considering larger issue sizes. If they do so, investors will get fewer opportunities to benefit from underpricing. Investors can, nevertheless, also profit from the knowledge generated in this paper. When market sentiment is positive and first-day trading volume is expected to be high, investing in ICOs is likely to give them higher first-day returns. Finally, the authors hope that this paper will serve as a basis for further research into the exciting and dynamic world of cryptocurrencies.

Originality/value

There is hardly any research on underpricing of ICOs. The paper is interesting for its table with a brief comparison of ICOs and IPOs. It also searches for variables from the asymmetric information theory behind IPOs to be applied in explaining ICOs. It shows high levels of ICO underpricing in comparison to IPOs. It also gives suggestions for issuers of (and investors in) ICOs.

Details

Managerial Finance, vol. 45 no. 4
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 11 January 2013

Salim Darmadi and Randy Gunawan

The purpose of this paper is to examine whether and how underpricing is associated with board structure and corporate ownership among firms conducting initial public…

Abstract

Purpose

The purpose of this paper is to examine whether and how underpricing is associated with board structure and corporate ownership among firms conducting initial public offerings (IPOs) in the Indonesian equity market.

Design/methodology/approach

To capture the most recent development, the sample comprises 101 firms conducting IPOs in Indonesia's primary equity market in the period of 2003‐2011. The explanatory variables consist of board size, board independence, ownership concentration, and institutional ownership. In further analysis, the authors perform regressions considering three types of the controlling shareholder, namely families, foreign entities, and the government.

Findings

Providing some support for signaling theory, it is found that board independence is positively related to the level of underpricing. Further, this study provides evidence that the level of underpricing is negatively associated with both board size and institutional ownership, indicating that these two governance mechanisms play important roles in mitigating information asymmetry between the issuer and potential investors. Ownership concentration is insignificant in explaining the first‐day returns. When the type of corporate control is taken into account, it is revealed that government‐controlled companies tend to experience higher underpricing.

Originality/value

This paper contributes to the IPO underpricing literature since the influence of corporate governance mechanisms on initial returns is relatively under‐researched, particularly within the context of emerging markets.

Details

Managerial Finance, vol. 39 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 10 June 2019

Amanpreet Kaur and Balwinder Singh

The purpose of this paper is to examine the relationship between corporate reputation and initial public offering (IPO) underpricing for a sample of 269 IPOs hitting the…

Abstract

Purpose

The purpose of this paper is to examine the relationship between corporate reputation and initial public offering (IPO) underpricing for a sample of 269 IPOs hitting the Indian capital market for the first time during the period ranging from April 1, 2007 to November 8, 2016.

Design/methodology/approach

The study is based on secondary data (of 269 Indian companies going public) obtained from websites of capital market, Chittorgarh and Securities and Exchange Board of India (from where prospectus of each company was downloaded individually to extract data on financial variables). The study devises the technique of multivariate regression analysis to arrive at the results.

Findings

The results of the study reveal that corporate reputation serves as a signal to naive investors that assures them of issuer company’s credibility, resulting in lower underpricing. In addition to it, the study also observes the level of gender diversity on Indian boards. It is disappointing to notice low level of female representation on Indian boards and the improvement if any made in the number of female directors on Indian boards is due to provisions of new companies’ act, 2013 that mandates at least one women director on the board of every listed company. Thus, females do not constitute a critical mass on Indian boards.

Research limitations/implications

The current study scrutinizes the impact of corporate reputation on IPO underpricing only. Furthermore, the study analyzes the underpricing of only book built IPOs. Incorporating both book built and fixed price IPOs could have provided better insights into the issue.

Practical implications

The study outlines significant implications for managers of issuer company to portray company’s own reputation as a signal instead of showcasing borrowed reputation of external agents at the crucial juncture of going public.

Originality/value

Many signals portraying quality of the offering are sent by issuer company in public arena to make IPO launch a successful event. Among many such signals like underwriting reputation, auditor reputation, director’s and CEO’s reputation, the corporate audience has started giving more impetus to issuer company’s own reputation. Thus, financial academia witnessed a paradigm shift from external agents reputation to internal agent’s reputation and now the loci of interest has shifted to company’s own reputation. Giving emphasis to corporate reputation seems more relevant in emerging economies like India where naive investors rely on their own judgments while making investment decision who take clue from various signals to infer quality of the offer. It is momentous to observe whether reputation of the company acts as a conspicuous signal to decipher IPO quality. Furthermore, there hardly exists any empirical research directly examining the impact of corporate reputation on IPO underpricing in the Indian context. Hence, the present study is a modest attempt to fill this gap in literature.

Details

Asia-Pacific Journal of Business Administration, vol. 11 no. 2
Type: Research Article
ISSN: 1757-4323

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Article
Publication date: 8 May 2018

Claudia Ascherl and Wolfgang Schaefers

The purpose of this study is to examine the differences between initial public offering (IPO) pricing in the real estate sector and to provide insight into how real estate…

Abstract

Purpose

The purpose of this study is to examine the differences between initial public offering (IPO) pricing in the real estate sector and to provide insight into how real estate investment trust (REIT) and real estate operating company (REOC) IPOs perform in a comparative framework.

Design/methodology/approach

The sample consists of 107 European REIT and REOC IPOs from nine European countries over the period 2000-2015. The initial returns are examined by creating subsamples based on the two business forms, countries and specific timeframes (before, during and after the global financial crisis). A multiple regression analysis is applied to identify the ex-ante uncertainty factors, IPO and firm characteristics, which may impact on the different underpricing levels of REITs and REOCs.

Findings

European property companies are on average significantly underpriced by 4.63 per cent. The results also reveal that REITs provide a significantly lower underpricing of 2.02 per cent than REOCs, with a positive initial return of 5.69 per cent. The causal treatment effect of the legal form of the company and the underpricing is confirmed by propensity score matching. Among the most influential factors for a lower REIT underpricing, besides the REIT-status itself, are the volatility, offer size and market phase of the IPO. During the global financial crisis (GFC) (2008-2010), underpricing exceeds the initial return for the total sample by approximately 70 per cent.

Originality/value

This is the first study investigating differences in the underpricing level of REITs and REOCs in a European setting, including the GFC as an extraordinary market phase. The authors provide evidence that REIT IPOs compared to REOC IPOs “leave less money on the table”.

Details

Journal of European Real Estate Research, vol. 11 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 11 July 2016

Kulabutr Komenkul and Dhanawat Siriwattanakul

The purpose of this paper is to investigate the characteristics of the Initial Public Offering (IPO) market, IPO underpricing and the long-run performance of IPOs and to…

Abstract

Purpose

The purpose of this paper is to investigate the characteristics of the Initial Public Offering (IPO) market, IPO underpricing and the long-run performance of IPOs and to find out the ex ante difference in the market structure between the pre-, during and post-periods of the Unremunerated Reserve Requirement (URR) at the 30 per cent rate.

Design/methodology/approach

The sample is a total of 245 IPOs listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (mai), during the period 2001-2012. The explanatory variables consist of the age of the firm, the offer size, the time-lag between the IPO date and the first trading date, the proportion of shares owned by the government and the IPO subscription rates by foreign and institutional investors. In further analysis, the authors adopt a two-stage least squares approach to derive unbiased estimates of the relationship between government ownership, IPO underpricing and firm quality.

Findings

We find the ex ante uncertainty and earning management partially explain the IPO underpricing phenomenon in the Thai IPO market. Our findings support the impresario hypothesis shown by the negative relation between underpricing and the three-year after-market. In addition, the 30 per cent URR imposition by the Thai Central Bank promptly reduced the number of IPO issues and the proportion of foreigners and institutions subscribing to IPOs. However, it was able to enhance the degrees of IPO underpricing and the long-run performance of IPOs in Thailand.

Practical implications

The results presented in this paper may be, therefore, useful for investors, security analysts, companies and regulators in many other emerging markets beyond Thailand. Given the results from the over-performance of IPOs in the post-URR period, investors may do better holding Thai IPOs for a long period with a likelihood of gaining a higher return.

Originality/value

This paper contributes to the literature concerning IPOs – in that we have considered two stock markets, namely, SET and mai. Furthermore, unique data such as the government ownership and proportion of IPOs subscribed by foreign and institutional investors are taken into consideration in our research model. To the best of our knowledge, for the first time in the Thai IPO market, the effect of the 30 per cent URR on IPO underpricing and the performance of IPOs in the long-run has been closely examined.

Details

Journal of Financial Regulation and Compliance, vol. 24 no. 3
Type: Research Article
ISSN: 1358-1988

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