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Article
Publication date: 1 January 2004

Ashley Burrowes, Horst Feldmann, Mareile Feldmann and John MacDonald

Eckbo, Masulis, & Norli (2000) question previous examination of initial public offering (IPO) underperformance with the keen argument that the increase in the number of…

Abstract

Eckbo, Masulis, & Norli (2000) question previous examination of initial public offering (IPO) underperformance with the keen argument that the increase in the number of traded shares and the infusion of equity reduce two significant premia in the stock’s return, namely, liquidity risk and financial risk. The new market for high (expected) growth stock in Germany is examined for evidence of underpricing, underperformance, and liquidity improvements during the first two complete years of operation – 1998 and 1999. The initial trading period examines the offering day and also the first ten days of trading (for the investor who can not get allocation but enters the secondary market). The postissue performance study period is taken as the 5‐day period one‐year after the IPO. Using regression of four underpricing measures upon issuing firm characteristics deemed important from the extant literature, we seek to explain the degree of underpricing discovered. We find that substantial underpricing occurs and performance is high one year later, even adjusted for the German market return for the period or the firm‐specific sector performance for the same period. Trading dwindles for most stocks after the offering day. One year later, the trading of the stock is even lower. We do find that the more active the trading in the initial period, the greater the returns and trading one year after.

Details

Managerial Finance, vol. 30 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 January 2003

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…

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.

Details

Studies in Economics and Finance, vol. 21 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 January 2002

Jarrod Johnston and Jeff Madura

Roll‐up initial public offerings (IPOs) create a company to consolidate a number of smaller companies in a fragmented industry. The company that results has limited…

Abstract

Roll‐up initial public offerings (IPOs) create a company to consolidate a number of smaller companies in a fragmented industry. The company that results has limited operational experience and must combine several small and diverse companies. These characteristics may increase the uncertainty of the offer. We find that roll‐up IPOs have higher initial returns than traditional IPOs, implying additional uncertainty. Additionally, roll‐up IPOs do not perform as poorly as other IPOs over the long run. This may be due to benefits from economies of scale and a higher degree of monopoly power.

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Studies in Economics and Finance, vol. 20 no. 1
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 1 February 2002

M. Banu Durukan

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…

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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Managerial Finance, vol. 28 no. 2
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 29 June 2012

Hany Kamel

The purpose of this paper is to empirically investigate the phenomenon of earnings management in the Egyptian initial public offerings (IPO) market where most of the IPOs

Abstract

Purpose

The purpose of this paper is to empirically investigate the phenomenon of earnings management in the Egyptian initial public offerings (IPO) market where most of the IPOs were the privatisations of state‐owned enterprises (SOEs).

Design/methodology/approach

Using a sample of 59 Egyptian IPOs, the extent of earnings management was computed using a modified cross‐sectional version of Jones’ model.

Findings

The initial results do not provide support for the hypothesis that Egyptian IPO firms tend to overstate their earnings before the IPO date. However, when the sample firms were classified under two groups based on the pre‐IPO discretionary accruals, the results illustrate that most privately‐owned companies were found among those which contemplate to aggressively manage earnings upwards in order to maximise the IPO proceeds, whereas privatised public enterprises were found with no systematic pattern of earnings manipulation. The results also demonstrate that pre‐offering discretionary accruals do not explain the post‐offering underperformance in earnings but predict a portion of the subsequent poor share returns performance.

Practical implications

The findings could be of assistance to all those involved in IPOs, such as the regulatory authorities and the primary and secondary market investors.

Originality/value

With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, it is hoped that undertaking a research in a country such as Egypt, where the shareholding structures of most Egyptian IPO companies were concentrated in the hands of the state before going public, may reveal a different perception of earnings management and help determine whether this setting would lead to a higher or lower propensity for earnings management.

Details

Journal of Accounting in Emerging Economies, vol. 2 no. 2
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 1 June 2005

Ya‐Fang Wang, Picheng Lee, Chen‐Lung Chin and Gary Kleinman

This study examines whether a regulation on mandatory disclosure of financial forecasts since June 1991 and further sanction imposition since March 1998 contribute to…

Abstract

This study examines whether a regulation on mandatory disclosure of financial forecasts since June 1991 and further sanction imposition since March 1998 contribute to lower IPO firms’ initial and aftermarket returns, and shorten honeymoon periods. The study is based on 423 IPO firms after the regulation required them to disclose their forecasts and 53 IPO firms prior to the regulation. The findings report that initial and aftermarket returns are lower, and honeymoon periods are shorter in the post‐regulation period than those in the pre‐regulation. The findings also report that initial and aftermarket returns are relatively smaller, and the honeymoon periods are shorter after the March 1998 regulatory sanction was imposed after controlling other variables. These results document that the financial forecasts disclosure regulation evidently contributes to mitigating information asymmetry.

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Journal of Financial Regulation and Compliance, vol. 13 no. 2
Type: Research Article
ISSN: 1358-1988

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Book part
Publication date: 9 September 2020

Hon-Wei Leow and Wee-Yeap Lau

This study examines the impact of the trading volume on Initial Public Offering (IPO) initial return in the context of an emerging market from January 2006 to December…

Abstract

This study examines the impact of the trading volume on Initial Public Offering (IPO) initial return in the context of an emerging market from January 2006 to December 2016. Models consist of hierarchical and multiple regressions have been evaluated. Our results show, firstly, IPO provides an average of 21.90% of initial return to investors on the first trading day, 9.08% of return on the second day of trading, and 7.12% of return on the third day of return. Secondly, there is a positive relationship between the oversubscription ratio and initial return and no relationship between trading volume and initial return on the first three trading day. Thirdly, the trading volume does not act as a moderator that worsens the relationship between the oversubscription ratio and initial return. Lastly, this study shows that investors should actively participate in the subsequent trading of an IPO. Higher participation will bring greater liquidity and shareholder wealth in the stock market. To the authors' knowledge, this is the first study on the moderating effect of trading volume on IPO initial return in an emerging market.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-83867-363-5

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Article
Publication date: 1 December 2002

Nancy L. Beneda

This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by…

Abstract

This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by non‐Section 20 underwriters (investment houses). Consistent with a ‘net certification effect’ for banks, corporate equity IPOs underwritten by Section 20 subsidiaries have lower underpricing than those underwritten by investment houses. Secondly, commercial banks brought a relatively larger proportion of small equity IPO issues to market, during the period of this study. Contrary to the contention that universal banking restricts the availability of financing to small firms, bank underwriting appears to benefit small firms. Further, Section 20s do not increase underwriting fees to offset the effect on potential profits from lower underpricing. This study also finds that the focus of Section 20 on small IPOs results in higher quality for the IPOs they underwrite, as indicated by a lower standard deviation of underpricing.

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Journal of Financial Regulation and Compliance, vol. 10 no. 4
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 8 May 2018

Shaista Wasiuzzaman, Fook Lye Kevin Yong, Sheela Devi D. Sundarasen and Noor Shahaliza Othman

When a firm goes public for the first time, its prospectus serves as an important reference for investors. It is required by regulation that the risk factors which have…

Abstract

Purpose

When a firm goes public for the first time, its prospectus serves as an important reference for investors. It is required by regulation that the risk factors which have significant influence on the business be disclosed in the prospectus. The purpose of this study is to analyze how disclosure of these risk factors influences the initial returns of initial public offerings (IPOs).

Design/methodology/approach

To do this, a sample of 96 Malaysian new equity offerings (IPOs) from year 2009 to year 2013 is used. Ordinary least squares regression technique is used to regress initial returns against risk disclosures. Aside from overall risk disclosure, individual dimensions of risk (internal risk, external risk and investment risk) are also considered.

Findings

Results of the regression analyses reveal a direct relationship between the IPO initial returns and the disclosure of risk. Overall risk disclosure is found to be highly significant in influencing initial returns. However, further investigation into the individual group of risks shows that only investment risk is highly significant in influencing IPO initial returns.

Originality/value

The results found in this study are interesting as, unlike prior studies, it is shown that disclosures of internal and external risks are not significant in influencing investors’ actions possibly because of their generalizability, whereas disclosures related to investment risks are significant. Equity of firms which disclose more of its risk factors can be expected to generate higher initial returns.

Details

Accounting Research Journal, vol. 31 no. 1
Type: Research Article
ISSN: 1030-9616

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Book part
Publication date: 1 January 2009

Ira W. Lieberman, Anne Anderson, Zach Grafe, Bruce Campbell and Daniel Kopf

Within the past few years, a new phenomenon has taken place among the world's leading microfinance institutions (MFIs) – entry into new capital markets through initial

Abstract

Within the past few years, a new phenomenon has taken place among the world's leading microfinance institutions (MFIs) – entry into new capital markets through initial public offerings (IPOs). “Going public” launches MFIs into a new frontier, not only presenting challenges but also providing new opportunities for the institutions and the clients they serve.

Details

Moving Beyond Storytelling: Emerging Research in Microfinance
Type: Book
ISBN: 978-1-84950-682-3

1 – 10 of over 2000