Search results
1 – 10 of 272Chin-Chong Lee, Shaw Warn Too and Kuan San Ooi
Both issuing firms and underwriters shall benefit from the associations in underwriting contracts for seasoned equity offerings (SEOs). Issuing firms that are offered underwriting…
Abstract
Purpose
Both issuing firms and underwriters shall benefit from the associations in underwriting contracts for seasoned equity offerings (SEOs). Issuing firms that are offered underwriting contracts with clustered gross spreads do not have strong incentives to switch away from the firms' prior SEO underwriters, and thus these existing underwriters are able to maintain or gain greater market share. This study investigates how the clustering of percentage gross spreads affects the likelihood of underwriter switching.
Design/methodology/approach
Using the investment bank-underwritten SEOs in Hong Kong, the authors find that the percentage gross spreads of 40% of these SEOs are clustered at 2.5%. The seemingly unrelated bivariate probit model, Weibull survival mixed model and trivariate probit model are applied to analyse this phenomenon.
Findings
The authors' study provides first direct evidence that the clustering of percentage gross spreads lowers the likelihood of underwriter switching. Investment banks as underwriters can explicitly price underwriting contracts at a clustered level, more likely in periods of greater market volatility, and intentionally retain the banks' client firms using pricing arrangements. The authors' finding and approach offer more direct and distinct support that the issuer–underwriter association can be relationship-based.
Originality/value
Whilst the clustering of fees is interpreted as a type of anticompetitive price sitting, the authors contribute to literature by providing new empirical evidence on why percentage gross spreads as a price dimension are clustered. On top of contract efficiency and collusion, this study's new evidence provides a third view for the clustering of gross spreads.
Details
Keywords
The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It…
Abstract
Purpose
The purpose of this paper is to explore the reasons for the high‐frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It contributes to the literature by filling the gap and providing evidence that institutional and non‐market factors could affect listed companies' decisions to switch their lead underwriters in the Chinese capital market.
Design/methodology/approach
This paper employs a numerical measure of listed companies' loyalty to evaluate their frequency of switching lead underwriters, and employs a Logit model and an OLS model to identify the key determinants of switching lead underwriters by Chinese listed companies.
Findings
It is observed that the frequency of switching lead underwriters is very high among Chinese listed companies for their seasoned offerings. It is also found that underwriters' deficient reputation and the lack of industrial experience, together with the depreciation of relationship‐specific assets, could have important impacts on lead underwriters being frequently switched in China. Besides, the frequent switches of lead underwriters could also be attributable to the non‐market supervision and regulatory influences by Chinese authorities over the security underwriting market.
Originality/value
This paper could help further the understanding of the factors that could explain the listed companies' frequent switches of their lead underwriters for their seasoned offerings in China. In addition, this paper has policy implications on how to improve the listed companies' loyalty for regulators in China. These implications could help improve the regulatory environment and promote the overall performance of the Chinese security underwriting market.
Details
Keywords
Janice M. Gordon, Gonzalo Molina Sieiro, Kimberly M. Ellis and Bruce T. Lamont
Advisors play a key role in the mergers and acquisitions (M&A) process, but research to date has rarely focused on how their influence impacts these transactions. The present…
Abstract
Advisors play a key role in the mergers and acquisitions (M&A) process, but research to date has rarely focused on how their influence impacts these transactions. The present chapter takes stock of the present literature on M&A advisors from finance, economics, and management in order to integrate the currently diverging research traditions into a coherent framework. The current research has focused on proximal acquisition outcomes, like acquisition premiums or expected performance in the form of cumulative abnormal returns, but there is limited theoretical understanding of the advisors impact on the post-acquisition period. Moreover, while the role of advisor reputation has been highlighted on both the management and finance literatures as an important aspect of the role advisors play in the M&A process, there seems to be much to be addressed. Furthermore, and perhaps most importantly, the nature of the relationship between the advisor and the acquirer or target presents challenges to researchers where the advisor acts both as a provider of expertise in the M&A process, but may be simply acting on their own best interest. The new framework that the authors present here provides management scholars with a roadmap into a cohesive research agenda that can inform our theoretical understanding of the role of M&A advisors.
Details
Keywords
The purpose of this paper is to empirically examine the relationship between the level of underwriter spread and ownership structure by using data from Japanese IPO firms that are…
Abstract
Purpose
The purpose of this paper is to empirically examine the relationship between the level of underwriter spread and ownership structure by using data from Japanese IPO firms that are issued during the years 1997‐2002.
Design/methodology/approach
The paper uses regression analysis to determine the effect of the ownership structure (board, bank, affiliated venture capital firms) on underwriter spread and on the post‐issue operating performance of IPO firms.
Findings
This paper finds several results that are in contrast with previous studies. The ownership by board members is positively associated with the level of gross spread but is not associated with post‐issue operating performance. The presence of a commercial bank in the ownership structure of IPO firms decreases the gross spread and increases the post‐issue operating performance of IPO firms. Issuers pay a lower underwriting fee as the ownership share of the lead underwriter‐affiliated VC increases, unlike that of other VCs.
Originality/value
The results of this paper, supporting certification and monitoring hypotheses, contribute to academic research. Most previous studies do not support certification effects.
Details
Keywords
Bo Liu and Kemin Wang
Prior research on underwriter reputation treats underwriters as the unit of analyzing, while the purpose of this paper is to analyze underwriter reputation effects after…
Abstract
Purpose
Prior research on underwriter reputation treats underwriters as the unit of analyzing, while the purpose of this paper is to analyze underwriter reputation effects after introducing discretion of underwriters’ employees. Specially, this paper investigates the damage on underwriter reputation effects when underwriters’ employees tolerate issuers’ earnings management for their self-interest.
Design/methodology/approach
In 2004, a Chinese security regulation introduced two professional employees from the lead underwriter, known as sponsors, to work as individual financial intermediaries. This paper tests whether the ability of reputable underwriters in restraining issuers from manipulating earnings decreases after the 2004 regulation, given that the regulation encourages sponsors to exchange for their private benefits by ignoring issuers’ earnings management.
Findings
The inverse relation between underwriter reputation and issuers’ earnings management is weakened after the 2004 regulation, especially when underwriters do not employ enough sponsors. Sponsors who have tolerated issuers’ earnings management will win more business in the following years. The influence of underwriter reputation on issuers’ underpricing and post-initial public offering performance is also less significant after the regulation.
Originality/value
This work extends literatures on underwriter reputation from a completely different aspect that emphasizes the self-interest of underwriters’ employees. This paper also has direct policy implications for regulators, especially in the current reform climate that Chinese government is trying to carry out the Registration System.
Details
Keywords
Amira Akl Ahmed, Bosy Ahmed Gamaleldin Fathy and Nagwa Abdl-Allah Samak
This article investigates the determinants of cross-section variation of initial public offerings' (IPOs) first-day returns in a sample of 710 issues across seven emerging markets…
Abstract
Purpose
This article investigates the determinants of cross-section variation of initial public offerings' (IPOs) first-day returns in a sample of 710 issues across seven emerging markets between 2013 and 2017.
Design/methodology/approach
Ordinary least squares regression (OLS) and the semi-parametric quantile regression (QR) technique are employed. QR enables to analyse beyond the explanatory variables' relative mean effect at various points in the endogenous variable distribution. Furthermore, parameter estimates under QR are robust to the existence of outliers and long tails in the data distribution.
Findings
Underpricing varies across countries with an average of 78%. According to the OLS results, independent variables explain 26% of the variation of IPOs' first-day returns. Findings show that employing QR is important, given the non-normality of the data and because each quantile is associated with a different effect of explanatory variables.
Originality/value
In addition to firm-specific, market-specific and issue-specific factors, the paper extends IPOs' underpricing literature through studying the impact of country-specific characteristics, largely neglected by literature, on IPO underpricing.
Details
Keywords
Seshadev Sahoo and Abhimanyu Sahoo
This paper aims to investigate the impact of the underwriters’ syndicate size (SS) and its structure on underpricing (UP), oversubscription rate, liquidity and volatility. The…
Abstract
Purpose
This paper aims to investigate the impact of the underwriters’ syndicate size (SS) and its structure on underpricing (UP), oversubscription rate, liquidity and volatility. The authors use a database of 185 initial public offers (IPOs) issued in India during the period 2012–2019.
Design/methodology/approach
The authors have used ordinary least squares regression and stepwise regression on cross-sectional data to construct the regression model for the dependent variables under consideration, namely, UP, subscription rate (SUB), listing day volatility and listing day liquidity.
Findings
The authors find that larger syndicates reduce UP. The authors also find strong evidence of a larger subscription rate for IPOs managed by larger syndicates, suggesting that larger syndicates generate more information in the market. Looking into the composition of investment banks in the syndicate, the authors find that syndicates comprising more lead managers and comanagers attract a higher subscription from potential investors. More book running lead managers and nonmanaging syndicate members help increase liquidity and reduce the volatility of IPO stocks on listing day. Additionally, the authors find that larger firms with reputed lead managers establish larger syndicates while venture-affiliated IPO firms prefer a smaller syndicate.
Practical implications
The findings would interest issuing firms, investors, intermediaries and policymakers engaged in formulating syndicates for better management of IPOs.
Originality/value
The study extends the present literature on IPO syndicates, particularly in the Indian context as an emerging economy. The study extended the present understanding of SS and composition, creating value for the issuers.
Details
Keywords
Stefano Paleari and Silvio Vismara
The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when…
Abstract
Purpose
The purpose of this paper is to contribute to the literature on the valuation of initial public offerings (IPOs). In particular, it tests the presence of over‐optimism when pricing IPOs on the Italian Nuovo Mercato.
Design/methodology/approach
The paper investigates whether the analysts make systematic errors when forecasting the performance of the firm undergoing the IPO by comparing analysts’ ex‐ante expectations to actual ex‐post figures. Using a sample of pre‐IPO analysts’ reports, the paper performs a regression analysis using the forecast errors (FE) of post‐issue sales as dependent variable in order to find out the determinants of mis‐valuation.
Findings
It is found that the Nuovo Mercato has been essentially a “market for projects” in which young enterprises endowed with a few tangible assets sold their business plans to the market exploiting high‐growth opportunities. In the aftermarket, stock and operating performances are found to be declining, falling short of initial expectations. The extent of the actual post‐issue growth was lower than the ex‐ante estimations by financial analysts, whose valuations were systematically upwardly biased. Affiliated analysts are found not to be more over‐optimistic than the unaffiliated. FE appear to be primarily driven by the extent of forecasted growth, by market sentiment and (inversely) by the size of the firm.
Originality/value
From the perspective of investors, this study contributes to the understanding of the helpfulness and limits of the analysts’ forecasts in investment decisions and, more generally, of the determinants of over‐optimism. This study addresses the issue of over‐optimism and provides empirical evidence of it. This paper also contributes to the literature on the rise and fall of the new European stock markets.
Details
Keywords
Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have…
Abstract
Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have challenged the purported homogeneity of market logics, they have not linked market heterogeneity to price outcomes. If market logics are internally complex with multiple orientations toward pricing, skilled actors should be able to influence prices through market logics. This study utilizes qualitative analysis of interview data with a stratified random sample (75 percent response rate) of key participants to examine how investment banks (underwriters) instantiate a hybrid market logic in the Initial Public Offering (IPO) market. Underwriters exploit their status position to promulgate IPO pricing methods contradicting neoclassical rationality, behavioral models of pricing, and the underwriters’ own calculative mode of behavior. They successfully create this hybrid logic for issuers while hiding the nature of their market power through deceptive use of vocabulary from the market logic itself. Hence, the internal complexity of market logics directly impacts financial prices, with skilled actors achieving superior outcomes. This study concludes with an assessment of the implications for price theory, developing propositions to guide future research on market logics and pricing.
Details
Keywords
Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have…
Abstract
Economic theory posits a universal sociocultural orientation toward pricing complicated only by systematic cognitive biases. While institutional and organizational theorists have challenged the purported homogeneity of market logics, they have not linked market heterogeneity to price outcomes. If market logics are internally complex with multiple orientations toward pricing, skilled actors should be able to influence prices through market logics. This study utilizes qualitative analysis of interview data with a stratified random sample (75 percent response rate) of key participants to examine how investment banks (underwriters) instantiate a hybrid market logic in the Initial Public Offering (IPO) market. Underwriters exploit their status position to promulgate IPO pricing methods contradicting neoclassical rationality, behavioral models of pricing, and the underwriters’ own calculative mode of behavior. They successfully create this hybrid logic for issuers while hiding the nature of their market power through deceptive use of vocabulary from the market logic itself. Hence, the internal complexity of market logics directly impacts financial prices, with skilled actors achieving superior outcomes. This study concludes with an assessment of the implications for price theory, developing propositions to guide future research on market logics and pricing.
Details