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1
Helwege, Jean, and Nellie Liang. "Initial Public Offerings in Hot and Cold Markets." Journal of Financial and Quantitative Analysis 39, no. 3 (September 2004): 541–69. http://dx.doi.org/10.1017/s0022109000004026.
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AbstractThe literature offers many explanations for why the IPO market cycles from hot to cold. These include theories in which hot markets represent clusters of IPOs in a new industry, and signaling models that predict that hot markets draw in better quality firms. Others suggest hot market IPOs' stock returns reflect their poor quality. We compare IPOs over cycles during 1975–2000 and find that hot and cold IPO markets do not differ so much in the characteristics of the firms that go public as in the quantity of firms that go public. Both hot and cold IPOs are largely concentrated in the same narrow set of industries and they have few distinctions in profits, age, or growth potential. Our results suggest that hot markets are not driven primarily by changes in adverse selection costs, managerial opportunism, or technological innovations, but more likely reflect greater investor optimism.
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Jain, Neeta, and C. Padmavathi. "Underpricing of Initial Public Offerings in Indian Capital Market." Vikalpa: The Journal for Decision Makers 37, no. 1 (January 2012): 83–96. http://dx.doi.org/10.1177/0256090920120107.
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This paper is an attempt to empirically explore the determinants of underpricing of Initial Public Offerings (IPOs) in the Indian Capital Market. IPOs are one of the largest sources of capital for the firms to invest in the growth opportunities. It encourages investment activities in the economy by mobilizing funds from low growth opportunities to high growth opportunities. It has been observed that IPOs are underpriced in most of the countries (Loughran, Ritter and Rydqvist 1994). Underpricing is the pricing of the issue at lesser price than the true value of the issue. The degree of underpricing varies from country to country and issue to issue in the same country. The underpriced IPO leaves money on the table which is a cost (loss of capital) for the company and the same becomes a gain for the investors in the form of positive initial returns on the underpriced shares. Though underpricing is a cost for the issuing company, the issuing company underprices the issue. There are many theoretical explanations for underpricing of IPOs. This is an empirical study which aims to find out the factors which are causing underpricing in India. The underpricing of IPOs is a serious problem for any economy. On the one hand, high underpricing tendency in the primary market discourages IPOs issued by those companies which cannot afford or do not want underpricing (leaving money on the table). On the other hand, it creates arbitrage activities in the secondary market and in the grey market. The underpricing of IPOs thus hampers the growth opportunities and creates instability in the secondary market. In India, introduction of book building mechanism of IPOs in 1998 aimed to reduce underpricing because in the book building mechanism, offer price of the issue is determined on the basis of market feedback. The present study on 227 book-built IPOs for the period of 2004 to 2009 found that the average underpricing during this period was 28 per cent while the maximum underpricing was around 242 per cent. Thus underpricing of IPOs is still an issue of concern.
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Zubair Mumtaz, Muhammad, Zachary A. Smith, and Ather Maqsood Ahmed. "The Aftermarket Performance of Initial Public Offerings in Pakistan." LAHORE JOURNAL OF ECONOMICS 21, no. 1 (January 1, 2016): 23–68. http://dx.doi.org/10.35536/lje.2016.v21.i1.a2.
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This paper estimates the aftermarket performance of initial public offerings (IPOs) listed on the Karachi Stock Exchange. The evidence confirms that IPOs generate statistically significant abnormal returns in the short run, which indicates that underwriters initially underprice IPOs when analyzed using a short time horizon. However, when using longer time horizons to estimate abnormal performance, the results indicate that IPOs underperform in the long-run. There is an apparent dislocation between the initial valuation set by underwriters and the premium paid by the market for these new issues. The market sentiment that causes this temporary disequilibrium eventually fades and the market reprices the newly issued shares. We conduct an extreme bounds analysis to test the sensitivity and robustness of 16 explanatory variables in determining the long-term performance of unseasoned newly issued shares. The results indicate that the long-term investment ratio, industry affiliation, market-adjusted abnormal returns, financial leverage, return on assets, IPO activity period, the aftermarket risk level of unseasoned issues, and the post-issue promoter’s holdings variables significantly affect IPOs’ aftermarket performance. Theoretically, the overreaction hypothesis, ex-ante uncertainty hypothesis and window-of-opportunity hypothesis best explain IPOs’ aftermarket performance in this study.
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Batool, Zahira. "Long Run Performance of Initial Public Offerings (IPOs) in Pakistan." Business and Management Horizons 6, no. 2 (December 30, 2018): 95. http://dx.doi.org/10.5296/bmh.v6i2.14195.
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This study is aimed to analyze long run performance of initial public offerings (IPOs) in Pakistan by taking the sample of 15 firms for the period of 2006 to 2011. We took secondary data for our research from KSE, SBP, and Brecorder. Stock returns of IPO firms are considered as dependent variables and firm size, firm age, profitability and leverage ratios are considered as explanatory variables for the long run performance of IPOs. Previous literature on IPOs indicates that IPOs underperform in the long run. Firm’s size and profitability have some significant positive correlation with the IPOs long run performance. All the findings of this research paper depend upon the background of the different industry sectors, the perspective of the study and sample distribution. And the Leverage ratio and Age of the firms are negatively correlated with the long run performance of the IPOs.
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Prasad, Sameer, David C. Porter, and Linda Yu. "Modeling Internet Operations Using Initial Public Offerings." American Journal of Business 20, no. 2 (October 28, 2005): 25–34. http://dx.doi.org/10.1108/19355181200500009.
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In this research we test the generalizability of an existing model for classifying information‐intensive services that can be globally disaggregated to Internet services. This categorization allows us to judge which types of Internet Initial Public Offerings (IPOs) are likely to have superior performance. Specifically, we hypothesize that Internet firms with higher information intensity, lower physical presence and lower customer contact needs will have a greater probability of generating larger risk‐adjusted returns. We test these hypotheses on 340 Internet IPOs and find partial support for the model. In particular, Internet firms with high information intensity and low customer contact need yield superior performance. However, firms with low physical presence underperform in our sample.
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Alpalhão, Rui. "The Pricing of Portuguese Privatisation Second Initial Public Offerings." ISRN Economics 2014 (May 21, 2014): 1–13. http://dx.doi.org/10.1155/2014/652712.
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The paper studies the pricing of PSIPOs (privatization second initial public offerings) PIPOs of companies that had been public in the past. A dataset comprising all the Portuguese companies nationalized in 1975 and privatized in the late eighties and nineties is used. Findings on short- and long-run pricing of IPOs and PIPOs are summarized, and implications for the pricing of PSIPOs are discussed. Short- and long-run returns are computed, using three alternative methods (buy and hold abnormal returns, wealth relatives, and cumulative abnormal returns) in the long-run analysis. Short-run overpricing is identified, unlike the underpricing pattern revealed by most IPO research. This initial overpricing is essentially found to be corrected in the first trading month. In the long-run, no evidence of overpricing is found, again unlike the usual conclusion of the IPO literature, and more in line with empirical evidence on second IPOs. Results provide support to the conclusion that privatization IPOs tend to be less underpriced than standard IPOs and that firms coming back to the market for a second IPO tend to be less underpriced than pure IPOs and provide a good rating for the performance of the Portuguese Republic pricing stocks in the Portuguese privatization program.
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Madhusoodanan, T. P., and M. Thiripalraju. "Underpricing in Initial Public Offerings: The Indian Evidence." Vikalpa: The Journal for Decision Makers 22, no. 4 (October 1997): 17–30. http://dx.doi.org/10.1177/0256090919970403.
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Underpricing in the initial public offerings (IPOs) is a well documented phenomenon in the stock markets. In this paper T P Madhusoodanan and M Thiripalraju analyse the Indian IPO market for the short-term as well as long-term underpricing. They also examine the impact of the issue size on the extent of underpricing in these offerings and the performance of the merchant bankers in pricing these issues. The study indicates that, in general, the underpricing in the Indian IPOs in the shortrun was higher than the experiences of other countries. In the long-run too, Indian offerings have given high returns compared to negative returns reported from other countries. The study also reveals that none of the merchant bankers showed any better pricing capabilities.
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Luo, Yan, Xiaolin Qian, and Jinjuan Ren. "Initial public offerings and air pollution: evidence from China." Journal of Asia Business Studies 9, no. 1 (January 5, 2015): 99–114. http://dx.doi.org/10.1108/jabs-08-2014-0056.
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Purpose – The purpose of this study is to investigate the impact of firms’ financing activities on the environment. Faced with a deteriorating global environment, both corporations and regulatory bodies have become more responsive to environmental conservation problems. However, existing literature has not adequately addressed the question of whether and how firms’ business activities influence the environment. Design/methodology/approach – Using the daily air pollution indices of 120 Chinese cities from 2001 to 2012, this study found that air pollution is alleviated after firms’ initial public offerings (IPOs). This paper proposes that firms’ IPOs influence the ambient air pollution through three channels: production scale, technical reform and corporate governance effects. Findings – The authors of this study found that the proceeds acquired in IPOs result in enlarged production scales that increase pollution, while the investment of these proceeds in social responsibility-related technical reform and enhanced corporate governance reduce pollution. Moreover, the authors discover that firms with a higher state ownership emit fewer pollutants, thus supporting the positive monitoring role of the Chinese government. Originality/value – Although this study investigates the impact of IPOs on air quality in China, the proposed analytical framework also applies to studies of other financing activities in global markets. This study has important policy implications for government regulations in environmental controls.
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Miloud, Tarek. "The Venture Capital Certification Role In Initial Public Offerings." Journal of Applied Business Research (JABR) 32, no. 2 (March 1, 2016): 479. http://dx.doi.org/10.19030/jabr.v32i2.9590.
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Using high frequency Euronext Paris data, the paper examines the market microstructure trading characteristics of venture backed initial public offerings (IPOs) in the French market. Previous North American market studies approve the role played by venture capital (VC) firms for the certification of IPOs and their role in reducing the asymmetric information between investors. The study sample is composed of IPOs realized during the period 2000–2013 both with and without VC firm involvement. The results present no significant price difference between both IPO types. The cost of asymmetric information and of price volatility is higher for the VC-backed operations. Moreover, the study shows that underpricing is positively correlated to the cost of the information asymmetry. Contrary to previous studies, the results show that the effects of VC firm certification and monitoring are not perceived by IPO investors in the French market.
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Dhamija, Sanjay, and Ravinder Kumar Arora. "Determinants of Long-run Performance of Initial Public Offerings: Evidence from India." Vision: The Journal of Business Perspective 21, no. 1 (February 10, 2017): 35–45. http://dx.doi.org/10.1177/0972262916681243.
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The article examines the long-run performance of 377 initial public offerings (IPOs) made by Indian companies during the period 2005–2015. The objectives of the article are to analyze whether Indian IPOs underperform or outperform the broad market in the long run and to identify the key determinants of their long-run performance. The results show that the Indian IPOs outperform the broad market initially followed by significant underperformance in the long run. The IPOs listed on the main board during 2005–2015 yielded average initial excess returns (IERs) of about 22 per cent. However, 37 per cent of the IPOs provided negative IERs. The IPOs underperformed the broad market generating –57.33 per cent buy-and-hold abnormal return (BHAR) over 36 months after listing. Only 38 out of 377 IPOs (10 per cent) outperformed the benchmark index over a 36-month holding period. The important issue characteristics that influence the long-run performance of IPOs in India are the type of issuer (government-owned or private), lead manager prestige (LMP), promoter holding and the issue size.
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Gumanti, Tatang Ary. "AN INVESTIGATION OF EARNINGS MANAGEMENT IN INDONESIAN MANUFACTURING INITIAL PUBLIC OFFERINGS." Gadjah Mada International Journal of Business 5, no. 3 (August 12, 2003): 345. http://dx.doi.org/10.22146/gamaijb.5628.
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This paper examines whether the issuers of Indonesian manufacturing initial public offerings (IPOs) manage the firm's reported earnings by making income increasing discretionary accruals. The absence of market-determined prices for IPO shares prior to the offering has made issuers and underwriters to use nonprice information. The test was performed on a sample of 45 IPOs that went public during the period of July1991 through December 1994. The model used in this study follows the one developed by Friedlan (1994). The results show that there is no evidence that earnings management occurs among the sample firms. In other words, this study is unable to reject the null hypothesis that the issuers of Indonesian IPOs exercise accounting discretion that increases the reported earnings in the periods prior to the offering. In contrast, the study finds strong evidence of earnings management in the period after the offering, which could be interpreted as issuers trying to maintain the firm's performance after the offering by making income increasing discretionary accruals.
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Tong, Suk-Chong. "Financial communication in initial public offerings." Corporate Communications: An International Journal 20, no. 1 (February 2, 2015): 30–47. http://dx.doi.org/10.1108/ccij-02-2014-0006.
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Purpose – The purpose of this paper is to propose a model of financial communication to investigate the process of communicating risk signals between listed companies and their individual retail investors in initial public offerings (IPOs). Design/methodology/approach – A survey study on individual IPO investors (n=212) in the Hong Kong Stock Exchange was conducted to examine how risk estimates of individual retail investors were affected by three factors of financial communication, namely organizational trust, organizational reputation and investors’ trust in the media specialists. Structural equation modeling analysis was conducted. Findings – Respondents’ perceived risks of below-target returns and perceived risks of losses of principals were significantly affected by their perceived market risks. Respondents relied significantly on organizational trust to estimate their amounts of target returns and mitigate their perceived risks of losses of principals. Organizational reputation, which could be possibly reinforced by respondents’ trust in the media specialists, could enhance organizational trust. Practical implications – Corporate communications practitioners should pay attention to the effect of perceived market risk on risk estimate. As organizational trust is a significant precondition of risk taking in IPOs, practitioners should rethink the effectiveness of financial communication in which organizational trust, organizational reputation and investors’ trust in the media specialists are interrelated. Originality/value – There is a lack of research in financial communication from the organization-stakeholders perspective. This paper conceptualizes financial communication and provides insights to both scholars and practitioners in corporate communications on how significant factors of financial communication affect risk estimate in the financial market.
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Biswas, Sanjib, and Neha Joshi. "A Performance based Ranking of Initial Public Offerings (IPOs) in India." Journal of Decision Analytics and Intelligent Computing 3, no. 1 (December 15, 2023): 15–32. http://dx.doi.org/10.31181/10023022023b.
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In recent times, Indian Stock Market (ISM) has been witnessing a surge in the number of IPOs listed in stock exchanges. However, in many occasions it has been noticed that post-listing performance of several IPOs are below par to the expectations of the investors. IPO performance has been one of the major concerns. In this context, the present paper endeavours to carry out a comparative performance assessment of a list of IPOs. We consider a period of three years after listing. Our sample consists of a list of IPOs having heterogeneous nature of business operations and introduced in 2018. We consider two aspects of the performance such as market-based indicators and fundamental efficiency in terms of profitability, liquidity and risk. For comparison, LOgarithmic Percentage Change-driven Objective Weighting (LOPCOW) is used. The study period is considered as Fy 2020-21. The results reflect that for IPOs, market performance does not necessarily because of the fundamental efficiency. Further, we notice that the nature of equity ownership does not influence the market performance significantly. We surmise that during initial years, the performance of the IPOs at the marketplace is more driven by speculations and short-term goals of the investors. The result of validation test indicates that the ranking using LOPCOW method is comparable and consistent with a widely used model like Entropy.
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AlShiab, Mohammad S. "Initial Public Offerings Short and Long Term Performance of MENA Countries." European Scientific Journal, ESJ 14, no. 10 (April 30, 2018): 234. http://dx.doi.org/10.19044/esj.2018.v14n10p234.
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This study examines a comprehensive set of 162 Middle East and North Africa (MENA) Initial Public Offerings (IPO’s) for the period 2001- 2015, considered the first and most comprehensive data set investigated to date. Results confirmed that IPO performances are mixed among MENA countries classified into three groups. The first group comprises countries whose IPOs over-performed the Benchmark portfolio over the short-run, but underperformed over the long-run. The second group comprises countries where IPOs underperformed the Benchmark portfolio over the following 60 months post-listing date where such underperformance became quite significant over the long-run in comparison to the short-run. The third group comprises countries whose IPOs experienced cyclical performance change from over-performance to under- performance and vice versa. Overall, the IPOs went through cycles of price corrections around the fundamental value over the long term when compared to the short term performance.
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TRẦN THỊ HẢI, LÝ, and KHA DƯƠNG. "Evidence of Underpricing of Initial Public Offerings in Vietnam." Journal of Asian Business and Economic Studies 217 (July 1, 2013): 74–91. http://dx.doi.org/10.24311/jabes/2013.217.05.
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This study was conducted to find evidence of short-term underpricing of initial public offerings (IPOs) and factors that explain the level of underpricing based on IPO samples in the period between January 2005 and July 2012 in Vietnam. The authors found certain evidence to support the underpricing, with the underpricing rate set at 38% and 49%. Having bootstrapping regression model employed, the results showed that the two factors ? the exceeding purchase ratio and the starting price of the auctions ? negatively correlated as expected with underpricing rate while impact of market conditions appeared relatively weak. Other factors such as size, listing lateness, company age, state ownership after IPOs did not correlate with the underpricing levels in Vietnam
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Miloud, Tarek. "Earnings Management And Initial Public Offerings: An Empirical Analysis." Journal of Applied Business Research (JABR) 30, no. 1 (December 30, 2013): 117. http://dx.doi.org/10.19030/jabr.v30i1.8288.
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This paper studies the presence of earnings management in initial public offerings (IPOs) of French firms. When the aim of earnings management is to increase the attractiveness of the offered shares it needs to go undetected by market participants. This invisibility makes earnings management difficult to detect in the income statement and the balance sheet, thus investors would benefit from other information that reveals the probability of earnings management. Managers and owners incentives for managing earnings are used to assess the likelihood that earnings management is used before the IPO. Earnings management is tested by observing time-series profiles of accruals. The sample consists of French firms that went public in the years 1995 to 2008 on the Euronext Paris Exchange. The results suggest that IPO firms with the highest discretionary current accruals significantly underperformed, compared to equivalent companies in the third year following the IPOs.
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Cai, Kelly, and Heiwai Lee. "Stock Price Reactions To Debt Initial Public Offering Announcements." Journal of Applied Business Research (JABR) 29, no. 1 (December 27, 2012): 69. http://dx.doi.org/10.19030/jabr.v29i1.7556.
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We examine the valuation effect of initial public debt offers on issuing firms common stock for the period 1970 to 2010. In contrast to findings for seasoned debt offerings, we find a statistically significant cumulative abnormal return of -0.24 percent over the three-day announcement period for the overall sample of 1,207 debt IPOs. Consistent with the prediction of the adverse selection model of Myers and Majluf (1984), the significant negative valuation effect of debt IPOs is only associated with risky issues that are assigned a high-yield bond rating. The announcements of low-risk investment grade debt IPO issues are associated with insignificant positive stock price reaction. In addition to the certifying effect of investment grade rating, the market also reacts favorably to successful debt IPOs issued under challenging conditions.
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Cheng, C. S. Agnes, Jing Wang, and Steven X. Wei. "State Ownership and Earnings Management around Initial Public Offerings: Evidence from China." Journal of International Accounting Research 14, no. 2 (June 1, 2015): 89–116. http://dx.doi.org/10.2308/jiar-51193.
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ABSTRACT This study investigates earnings management by firms around their initial public offerings (IPOs) in domestic Chinese equity markets. Using a sample of 437 IPO firms, we find that Chinese firms tend to inflate earnings around their IPOs. We also show that state-owned enterprises (SOEs) manage earnings to a lesser degree than non-state-owned enterprises (NSOEs) do around IPOs. Furthermore, using path analysis, we find that two incentive factors, CEO shareholding and accessibility to bank loans, explain 48 percent of the correlation between state ownership and earnings management for IPO firms. In particular, accessibility to bank loans is a more important incentive factor that leads to less earnings management for SOEs than NSOEs.
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Pandya, Falguni H. "After Market Pricing Performance of Initial Public Offerings (IPOs)." Jindal Journal of Business Research 5, no. 1 (June 2016): 1–16. http://dx.doi.org/10.1177/2278682116670077.
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Welbourne, Theresa M., and Kyle Gibson. "Building human capital advantage in initial public offerings (IPOs)." Academy of Management Proceedings 2015, no. 1 (January 2015): 14686. http://dx.doi.org/10.5465/ambpp.2015.137.
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Deloof, Marc, Wouter De Maeseneire, and Koen Inghelbrecht. "How Do Investment Banks Value Initial Public Offerings (IPOs)?" Journal of Business Finance & Accounting 36, no. 1-2 (January 2009): 130–60. http://dx.doi.org/10.1111/j.1468-5957.2008.02117.x.
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Prasad, Dev, George S. Vozikis, Garry D. Bruton, and Andreas Merikas. "“Harvesting” through Initial Public Offerings (IPOs): The Implications of Underpricing for the Small Firm." Entrepreneurship Theory and Practice 20, no. 2 (January 1996): 31–41. http://dx.doi.org/10.1177/104225879602000204.
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The existence of the phenomenon of “underpricing” has been well established for common stock initial public offerings (CSIPOs). However, the extent of underpricing varies from firm to firm. An examination of the prospectuses of different firms reveals that the motivation for going public varies, and that there are three types of offerings: pure primary offerings; pure secondary offerings; and mixed offerings. This study compares the average level of underpricing for pure primary offerings with that of mixed offerings for small firms in the over-the counter (OTC) capital market. The results of the study suggest that there are Implications of the type of offering for both the firm and the selling “harvesting” shareholders as well as the incoming investors.
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Burrowes, Ashley, and Kevin Jones. "Initial public offerings: evidence from the UK." Managerial Finance 30, no. 1 (January 1, 2004): 46–62. http://dx.doi.org/10.1108/03074350410768831.
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This investigation into the performance of Initial Public Offerings on the new Alternative Investment Market reveals that the expected high level of underpricing, that is usually associated with the risky nature of small, young and growing companies, is not supported by the evidence in this study. Raw and market adjusted figures reveal that IPOs listed on AIM at the London Stock Exchange appear to be only conservatively mispriced when contrasted to main board IPO listings in the US, UK and other countries. Due diligence listing requirements could be offsetting the otherwise risky nature of these small, young and growing companies. Finally AIM is discussed in terms of meeting its own targets and its ability to attract international listings.
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Strauß, Nadine, and Toni G. L. A. van der Meer. "News media coverage and initial public offerings in Germany: explaining flotation performance." Corporate Communications: An International Journal 22, no. 4 (October 2, 2017): 523–41. http://dx.doi.org/10.1108/ccij-04-2017-0028.
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Purpose The purpose of this paper is to investigate the relationships of news media coverage and the performance of initial public offerings (IPOs) in Germany. The aim is to find out how media attention, media sentiment, corporate information, and recency of news are related to the flotation performance of firms that go public. Design/methodology/approach 50 IPOs that went public in Germany between January 2011 and December 2015 were investigated. In total, 3,644 German speaking articles dealing with the IPOs were manually analyzed. Hierarchical OLS regressions were performed to find out how news media variables relate with the flotation performance of German IPOs (cf. underpricing, share price percentage gain after second day of trading). It was furthermore distinguished between news media coverage six days prior to the IPO and coverage on the day of the IPO itself. Findings While more media attention devoted to the IPOs on the day of their flotation might lead to a share price percentage gain after the second day of trading, negativity in the news media and information about new products and products of the IPO firm might be negatively related with their flotation performance. However, information about the strategy change of the IPO firms seems to be positively related with the underpricing of IPOs. Furthermore, news media coverage on the day of the IPO itself seems to be more influential for the flotation performance with regard to negative sentiment and information about new products. Practical implications Financial communication professionals should manage media representations of IPO firms before and on the day of the IPO itself. In this vein, negative media coverage should be prevented and information about new products and products of the IPO firm should be considered with caution. Instead, talking about the strategy of the IPO firm might be advantageous for the flotation performance. Originality/value This study evolved from a lack of empirical research on the interrelationships between news media and stock market prices in communication science, particularly with regard to IPOs. The study contributes to previous research in paying attention to corporate information and the recency of news when trying to explain IPO performances. The findings of this study provide implications for strategic financial communication and the role of managing news media of firms that go public.
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Sullivan, Michael J., and Angelo A. Unite. "The Underpricing of Initial Public Offerings in the Philippines from 1987 to 1997." Review of Pacific Basin Financial Markets and Policies 02, no. 03 (September 1999): 285–300. http://dx.doi.org/10.1142/s0219091599000163.
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In this paper we report returns for initial public offerings (IPOs) in the Philippines and investigate some characteristics found in other countries to affect returns, specifically offer size, firm age, and industry grouping. For a sample of 104 IPOs during the 11-year period 1987 through 1997, we find average initial returns of 22.69 percent. We do not find that offer size, firm age, or industry groupings affect IPO underpricing and conclude from our findings that underwriters who price Philippine IPOs face different regulatory policies, contractual mechanisms, market conditions than those present in other markets.
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Maximilian, Jung, and Jyoti Gupta. "Market Performance of Sponsor-Backed Initial Public Offerings: An Empirical Analysis of the German Market." Journal of Economics and Public Finance 4, no. 1 (January 12, 2018): 31. http://dx.doi.org/10.22158/jepf.v4n1p31.
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<p><em>This paper investigates the overall market performance of Initial Public Offerings (IPOs) in Germany, by analyzing the short and long run performance of IPOs, utilizing the data from 2000-2013. Furthermore the study aims to distinguish and compare the performance of sponsor backed IPOs to non-sponsor backed IPOs, by placing a special focus on the value creating abilities of financial sponsors. The examined data set consists of 286 IPOs out of which 46 can be considered as IPOs which were backed by financial sponsor. The study suggests that, on average, IPOs significantly underperform their benchmarks. Furthermore, the evidence implies significant differences across the IPO groups with regard to performance and operational indicators. The multivariate regression shows that in the long run, private equity firms outperform their counterparts, signified by greater buy-and hold abnormal returns respectively recorded within the three-year period after the IPO. </em></p>
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Bruce, A., and P. Thilakaratne. "Corporate Fraud Tendencies Versus Initial Public Offerings (IPOs) Initial Returns Volatility." British Journal of Economics, Management & Trade 5, no. 1 (January 10, 2015): 88–104. http://dx.doi.org/10.9734/bjemt/2015/12762.
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Andreas, Enni Savitri, Tatang Ary Gumanti, and Nurhayati. "Earnings management and initial public offerings among Indonesian manufacturing companies." Investment Management and Financial Innovations 18, no. 3 (August 2, 2021): 27–39. http://dx.doi.org/10.21511/imfi.18(3).2021.03.
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Earnings management (EM) refers to the common use of accounting techniques in various economic settings, such as Initial Public Offerings (IPOs), to produce financial statements. This study, therefore, analyzes the effect of firm size, operating cash flow, the used IPO proceeds, earnings changes, and leverage on EM of manufacturing companies on the Indonesia Stock Exchange from 1989 to 2013. This sector comprises the essential chemical industry, miscellaneous organizations, and consumer goods, with 63 firms being used to meet the selection criteria. The regression analysis showed that the intended use of funds and leverage had a negative and significant impact on EM. Furthermore, the process is measured using Friedlan’s (1994) Discretionary Current Accruals model with similar results found in each industry group and their insignificant differences used to regulate the level of discretionary accruals between the three sectors. This study implies that the EM level is qualitatively similar among IPO companies in the three sub-sectors examined. AcknowledgmentsThe authors are grateful to the audience for their comments during the 11th Environmental and Sustainability Management Accounting Network-Asia Pacific (EMAN-AP) Conference held at the Danang University of Economics, Danang, Vietnam, 12-13 August 2019. The early draft was titled “Earnings Management and Initial Public Offerings on Manufacturing Sectors Companies”.
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Bamford, Charles E., and Edward B. Douthett. "Venture capital and risk management: evidence from initial public offerings." Risk Governance and Control: Financial Markets and Institutions 2, no. 1 (2012): 30–40. http://dx.doi.org/10.22495/rgcv2i1art4.
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In this study we analyze a sample of initial public offerings (IPOs) to infer the sources of firm-specific risk associated with investment by venture capitalists. The results indicate that IPO backing by venture capitalists is associated with risk factors related to operating profit margins and ongoing sales generation, but not operational financing. The results also indicate that venture-backed IPOs are associated with greater reductions in firm-specific risk over the course of a year that includes the date of the IPO. In sum, the findings suggest venture capitalists are willing to accept higher levels of uncertainty in those instances where they have an advantage in terms of managerial skill, and are able to reduce firm-specific risk subsequent to investment in order to maximize returns when they cash out. Our study also makes use of proxies that are representative of the ex-ante nature of firm-specific risk at the time of a new issue.
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Gumanti, Tatang Ary, Ayu Retsi Lestari, and Siti Sofia Abdul Manan. "UNDERPRICING AND NUMBER OF RISK FACTORS OF INITIAL PUBLIC OFFERINGS IN INDONESIA." Business: Theory and Practice 18 (August 25, 2017): 178–85. http://dx.doi.org/10.3846/btp.2017.019.
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This study examines the effect of number of risk factors, use of proceeds for investment, size of issue and the level of ownership retained on initial returns of firm making Initial Public Offerings (IPOs) in Indonesian capital market. A sample of 290 Indonesia IPOs that went public between 1989 and 2005 were examined. The number of risk factors is found to be positively related to the level of average positive initial returns (underpricing). The level of ownership retention has negative but insignificant relationship with the level of underpricing. Firms that use the proceeds from the offering for investment or expansion purposes are less underpriced than their counterparts that use the funds for operating purposes. Size of issue is negatively associated with the level of underpricing.
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Dalton, Dan R., S. Trevis Certo, and Catherine M. Daily. "Initial Public Offerings as a Web of Conflicts of Interest: An Empirical Assessment." Business Ethics Quarterly 13, no. 3 (July 2003): 289–314. http://dx.doi.org/10.5840/beq200313321.
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Abstract:While a ubiquitous phenomenon, initial public offerings (IPOs) have received no attention in the ethics literature. We provide an overview of a series of potential conflicts of interest that pervade the IPO process. We also report the results of an empirical assessment of IPOs and those elements that may inform a substantive moral hazard faced by key players in the period prior to and just after an IPO.
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Tizniti, Douaa, and Mohammed Rachid Aasri. "Do Discounts Enhance or Degrade IPOs Valuation Performance?" Financial Markets, Institutions and Risks 5, no. 2 (2021): 34–41. http://dx.doi.org/10.21272/fmir.5(2).34-41.2021.
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In the present study, we investigate the impact of discounts on the valuation performance of initial public offerings. Review of existing literature reveals that such valuation performance lacks examination in terms of discounts as most studies focus on valuation methods. Accordingly, we examine the valuation performance of initial public offerings before and after applying discounts. Whereby, underwriters apply a deliberate discount to fair value estimate before setting the final offer price. We assess the valuation performance of initial public offerings through bias and accuracy errors as well as explainability. When valuation errors are low, the valuation performance is deemed superior. Our sample consists of 39 initial public offerings conducted on the Moroccan stock exchange between 2004 and 2018. We use publicly available prospectus to collect necessary data. Our results reveal that discounts applied to fair value estimate when setting the final offer price reduce valuation errors. Consequently, discounts enhance the valuation performance of initial public offerings. In fact, both optimistic and pessimistic final offer price are closer to market price in comparison with optimistic and pessimistic fair value estimate. We conclude that if valuations conducted by underwriters are objective, discounts serve as a qualitative valuation to supplement the quantitative one. This qualitative valuation incorporates relevant information about market circumstances with regard to initial public offerings. This indicates the superior fundamental analysis underwriters are capable of performing. However, if valuations conducted by underwriters are subjective, then underwriters deliberately overestimates fair value estimate to justify applying discounts when setting the final offer price. Nonetheless, our study reveals that discounts are more than proportional to valuation optimism. Consequently, while discounts absorb this valuation optimism, they also set a valuation pessimism. In other words, discounts avoid overpricing initial public offerings, yet they result in underpricing them. Interestingly, we discover that although optimistic fair value estimate and pessimistic final offer price have approximate valuation errors, underwriters are more comfortable underpricing initial public offerings than overpricing them.
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Komenkul, Kulabutr, Mohamed Sherif, and Bing Xu. "Prospectus disclosure and the stock market performance of initial public offerings (IPOs): the case of Thailand." Investment Management and Financial Innovations 13, no. 4 (December 29, 2016): 160–79. http://dx.doi.org/10.21511/imfi.13(4-1).2016.02.
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This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks. Keywords: Prospectus disclosure, IPO performance, Thailand. JEL Classification: G14, G30, G32
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Verma, Seema, and Dr Satish Kumar. "A Review Agenda: Grading Certification And Initial Public Offerings (Ipos)." IOSR Journal of Business and Management 19, no. 05 (May 2017): 39–47. http://dx.doi.org/10.9790/487x-1905053947.
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Gasymov, Afik, and Svetlana Makarova. "Determinants of underpricing initial public offerings (IPOs) of BRICS companies." BRICS Journal of Economics 2, no. 3 (September 30, 2021): 83–106. http://dx.doi.org/10.38050/2712-7508-2021-3-5.
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The purpose of this article is to identify the nature of the influence of crucial factors on the short-term underpricing of initial public offerings of common stocks of companies in the BRICS countries. Based on a sample of 1,141 companies from the BRICS countries that conducted IPOs (using Bloomberg and World Bank databases), we tested the influence of decisive factors on the underpricing of the shares of these companies. The empirical study is based on testing OLS models for different periods: for the period 2001–2018 and separately for the periods 2001–2008 and 2010–2018. The study shows that, firstly, with an increase in the volume of the placement of shares, their underestimation in an IPO decreases. In addition, having an auditor from the Big Four also reduces the underestimation of shares. Secondly, we revealed that the underpricing of shares in the course of the IPO increased with GDP growth. Besides, if companies place their shares on a foreign exchange, the underestimation of their shares increases. At the same time, such IPO parameters as the number of underwriters, the reputation of underwriters, and the deviation of the offer price from the middle of the price range during the placement period do not affect the underestimation of shares for companies from the BRICS countries. Taking into account the results of an empirical study, the article formulates recommendations for improving the efficiency of initial public offerings for companies from the BRICS countries.
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Singh, Amit Kumar, and Srishti Jain. "Foreign Direct Investment and Initial Public Offerings: Exploring the Roads Less Travelled." FIIB Business Review 9, no. 4 (December 2020): 309–18. http://dx.doi.org/10.1177/2319714520973849.
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This article examines the performance of initial public offerings (IPOs) issued by the economic sectors in India. It analyses the level of underpricing measured by market adjusted initial return (MAIR), short-run performance measured by market-adjusted abnormal return (MAAR) and long-run performance measured by 3-year buy and hold abnormal return (BHAR) methodology relative to Sensex and Nifty for 40 IPOs approaching the capital market during the period 2006–2016. The selection of IPOs is based on the foreign direct investment (FDI) limit of USD 3,000 million in each economic sector, that is, primary sector, secondary sector and tertiary sector. The long-run analysis is done at the end of the first year, the second year and the third year. It is found using the ordinary least square (OLS) regression that variables like age of the issuing firm and volume traded on the first day of listing have a positive relation with initial returns, while offer size of the IPO has a negative relation with the initial return. Further, this study also finds out that the secondary sector performs poorly in the long run relative to the primary and tertiary sectors. This study can be of importance to investors for assessing different sectors before investing.
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Mumtaz, Muhammad Zubair, and Ather Maqsood Ahmed. "Long-Run Pricing Performance of Initial Public Offerings (IPOs) in Pakistan." NUST Journal of Social Sciences and Humanities 2, no. 2 (January 21, 2021): 97–140. http://dx.doi.org/10.51732/njssh.v2i2.14.
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This study investigates the long-run pricing performance of 90 IPOs listed on the Karachi Stock Exchange from 1995 to 2010. This study finds evidence that IPOs show signs of underpricing and underperform over three years after listing; however, the observed pattern of underperformance is not always statistically significant. The equal-weighted buy-and-hold abnormal returns and calendar-time analysis confirm the significance of the IPO underperformance over the three year period after listing on the exchange. Extreme bounds analysis is used to test the sensitivity and robustness of twenty six explanatory variables in determining the IPO underperformance. The results reveal that the robust predictors of IPO underperformance include underpricing, financial leverage, age of the firm and oversubscription for buy-and-hold return calculations and underpricing, hot activity period, post issue promoters’ holding, issue proceeds and aftermarket risk level for cumulative abnormal return calculations. Moreover, the fads hypothesis and the window of opportunity hypothesis are applied to explain long-run IPO performance.
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Sahoo, Seshadev, and Prabina Rajib. "After Market Pricing Performance of Initial Public Offerings (IPOs): Indian IPO Market 2002–2006." Vikalpa: The Journal for Decision Makers 35, no. 4 (October 2010): 27–44. http://dx.doi.org/10.1177/0256090920100403.
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This paper is motivated by the apparent belief that IPOs are underpriced on the initial listing day and thereafter underperforms compared to the market benchmark. While evaluation of the listing day performance seems straightforward on surface, it actually invokes several complications for the subsequent performance measurement. This paper focuses on the evaluation of price performance of IPOs up to a period of 36 months including the listing day. It also examines the usefulness of IPO characteristics at the time of issue to seek an explanation for the post-issue price performance. The paper presents fresh evidence on IPO performance, i.e., short-run underpricing and long-run underperformance for 92 Indian IPOs issued during the period 2002–2006. It is reported that on an average the Indian IPOs are underpriced to the tune of 46.55 per cent on the listing day (listing day return vis-à-vis issue price) compared to the market index. Another contribution of this paper is the evaluation of the long-run post-issue price performance of Indian IPOs. The long-run performance of IPOs up to a period of 36 months are measured by using the two most promising evaluation techniques, i.e., wealth relative (WR) and buy-and-hold abnormal rate of return (BHAR), both being adjusted with market index, CNX-Nifty. Further, the results evidence that the underperformance is most pronounced during the initial year of trading, i.e., up to 12 months from the listing date followed by over�performance. To get possible explanations for long-run underperformance for Indian IPOs, factors like underpricing rate (listing day return), offer size, leverage at IPO date, ex-ante uncertainty, timing of issue, age of IPO firm, rate of subscription, promoter groups retention, and price-to-book value (as proxy for growth) are considered. Evidence is found, that initial day return, offer size, leverage at IPO date, ex-ante uncertainty, and timing of issue are statistically significant in influencing underperformance. However, there is no evidence favourable to the age of the IPO firm, rate of subscription, promoter group's retention, and price-to-book value impact on the long-run underperformance. The empirical results suggest that the investors who are investing in IPOs through direct subscription are earning a positive market-adjusted return throughout the period of study. But investors who have bought shares on the IPO listing day are earning negative returns up to 12 months from the listing date and expect to earn positive market-adjusted return thereafter. For future research, we suggest the extension of this analysis for additional explanatory variables including issue fundamental characteristics of IPO firms. The scope of the research study could even be improved by extending the time period of study prior to 2002.
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Liu, Yang, Peng Cheng, Zhe OuYang, and Ao Wang. "Information Asymmetry and Investor Valuations of Initial Public Offerings: Two Dimensions of Organizational Reputation as Stock Market Signals." Management and Organization Review 16, no. 4 (September 5, 2019): 945–64. http://dx.doi.org/10.1017/mor.2019.28.
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ABSTRACTThe uncertainty and information asymmetry that surround initial public offering firms (IPOs) often introduce difficulties for potential investors to discern organizational value, thereby leading to ‘underpricing’. Using the signaling theory, we investigate the role of organizational reputation in the underpricing of IPOs. We analyze 463 initial public offerings in China from the period of 2010 to 2016 and find that being known for quality and generalized favorability dimensions of reputation are negatively related with underpricing on the first day of trading. In addition, we find that the negative effects of organizational reputation on underpricing are mediated by investor attention.
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Eyssell, Thomas H., and Donald R. Kummer. "Signalling, Insider Trading, And Post-Offering Performance: The Case Of Initial Public Offerings." Journal of Applied Business Research (JABR) 9, no. 3 (September 29, 2011): 80. http://dx.doi.org/10.19030/jabr.v9i3.6040.
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Previous IPO studies have concluded that, on average, (1) the shares of firms going public are underpriced at the time of the offering, (2) prices adjust rapidly in the aftermarket, and (3) IPOs are generally poor performers over the longer-term. This study reevaluates the IPO pricing phenomenon utilizing more recent data and empirically tests the signaling models of Leland and Pyle (1977) and Gale and Stiglitz (1989), which imply that both first-day and aftermarket returns may be related to insiders transactions. Our results suggest that initial returns are inversely related to the proportion of the offering representing insiders share and that corporate insiders are, on average, net sellers in the year subsequent to the initial public offering. We also find that the greatest volume of post-offering insider sales occurs in those firms in which insiders are sold shares at the offering.
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Shi, Song, Qian Sun, and Xin Zhang. "Do IPOs Affect Market Price? Evidence from China." Journal of Financial and Quantitative Analysis 53, no. 3 (June 2018): 1391–416. http://dx.doi.org/10.1017/s0022109018000091.
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We examine whether sizable initial public offerings (IPOs) affect the whole market. Using a Chinese IPO sample, we find robust evidence that sizable IPOs depress the market price on not only the listing day but also the offering (subscription) day. The impact on the market is negatively correlated with IPO size on the listing day. However, this impact is largely transitory. The China Securities Regulatory Commission (CSRC) often places a moratorium on IPOs to support the market, which seems ineffective as the negative IPO effect is transitory and moratoriums are not perceived as good news.
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Ho, Horace. "Performance of Initial Public Offerings: Evidence from Hong Kong." Nang Yan Business Journal 2, no. 1 (November 20, 2014): 47–53. http://dx.doi.org/10.2478/nybj-2014-0025.
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Abstract This paper presents the findings of a study on the performance of the initial public offerings (IPO) of shares listed on the Hong Kong Stock Exchange (HKEx), which has been the largest IPO market in the world since 2009. One indicator of the success of an IPO is its subscription rate, which can be used as a proxy for the level of investor confidence in the stock being offered. This paper examines the relationship between the performance of an IPO and its subscription rate, and the corporate factors that may affect an investor's decision to subscribe to an IPO. The Hong Kong evidence can help shed light on the importance of agency cost in the pricing of IPOs.
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Dokku, Srinivasa Rao, Rajesh Choudary Jampala, and P. Adi Lakshmi. "A Study on Performance Evaluation of Initial Public Offerings (IPOs) in India during 2007-13." International Journal of Asian Business and Information Management 6, no. 1 (January 2015): 18–37. http://dx.doi.org/10.4018/ijabim.2015010102.
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The authors analyze 146 Indian Initial Public Offerings (IPOs) that were listed in Bombay Stock Exchange (BSE) between January 2007 and December 2009. The units of the sample are selected on the basis of companies available in the Indian stock market for three years for calculating short-term and long-term returns. The evidence suggests that the IPOs are initial day underpriced by 4.25 per cent and underperformed by 29.06 per cent after 36 months of listing. The study also finds that issue variables are highly influencing the IPOs performance in short run and long run but age of the company doesn't have any influence on its performance during the study period. The JEL classifications are G12, G14, G24, and G32.
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Yaakub, Nurwahida, and Mohamed Sherif. "Performance of initial public offerings (IPOs): the case of Shariah-compliant companies." Islamic Economic Studies 27, no. 1 (August 15, 2019): 65–76. http://dx.doi.org/10.1108/ies-06-2019-0012.
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Purpose The purpose of this paper is to examine the informational value of Shariah-compliant disclosure in the Malaysian initial public offerings (IPOs) prospectus and whether Shariah-compliant status has an impact on the IPO initial return when adopted as a signalling mechanism. Design/methodology/approach It uses data from 320 IPOs for Shariah-compliant companies listed on the Bursa Malaysia between 2004 and 2013. Findings It finds that the degree of IPO underpricing for Shariah-compliant companies is 19.97 per cent with investors earning significant returns on the first trading day. For the effect of different factors on the degree of IPO, we find that the size and type of IPO offers have a significant impact on the degree of IPO underpricing. Other economic confidence factor models fail to yield economically plausible parameter values. Originality/value The study contributes to the literature in a number of ways. It is the first to evaluate the effect of Shariah-compliance status regulation in Malaysian market, hence it provides an insight into the effectiveness of such regulation. Second, while the existing Shariah-compliant IPO studies in the same market focus on Shariah status at the date of the studies being conducted, this study uses the information around IPO time. The information that investors receive around IPO time may influence investors’ decision and valuation of the IPOs in the aftermarket. Specifically, this study is different from the previous research, as it investigates whether Shariah-compliant companies would change the average degree of IPO underpricing for companies listed on Bursa Malaysia.
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Singgih, Marmono, Veryantika Putri Pricilia, and Eka Lavista. "MARKET TO BOOK VALUE, FIRM SIZE, AND THE UNDERPRICING OF INDONESIAN INITIAL PUBLIC OFFERINGS." Review of Management and Entrepreneurship 2, no. 2 (September 25, 2019): 75–90. http://dx.doi.org/10.37715/rme.v2i2.964.
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The focus of this study is to analyse whether market to book value ratio and firm size determine the extent of initial returnrate of firms making initial public offering (IPO). The subject of the study is all IPO from the period of 2007-2016. There are 173 IPOs used as sample. It uses two measurements of initial retuns, the raw return and the market adjusted return. As documented in many studies, there is evidence that on average the Indonesian IPO experience underpricing. Results using regression analysis show that market to bookvalue ratio and firm size have negative and significant effect on both of the measures for initial return. This finding asserts the importance of understanding the market to book value ratio in the valuation of Indonesia IPOs.
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Daryaei, Abbas Ali, Pedram Azizi, and Yasin Fattahi. "Conservatism and Initial Public Offerings (IPOs) Underpricing: An Audit Quality Perspective." Iranian Journal of Finance 6, no. 4 (October 1, 2022): 125–59. http://dx.doi.org/10.30699/ijf.2022.284931.1230.
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Jampala, Rajesh C., P. Adi Lakshmi, and Srinivasa Rao Dokku. "A Study on Factors Influencing the Initial Public Offerings (IPO) in the Bombay Stock Exchange (BSE), India." International Journal of Corporate Finance and Accounting 3, no. 1 (January 2016): 22–35. http://dx.doi.org/10.4018/ijcfa.2016010102.
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This study has examined the IPO performance in India from 2007 to 2013. Results show that under-pricing exists in the first day of trading during the particular period, but results show that the degree of under-pricing is dramatically decreased in comparison with what is shown in previous studies. The study finds that the IPOs are influenced by its issue variables. The face value of the shares and oversubscription subscription of the share are highly affected factor for underpriced in initial day of listing. After 36 months of listing the IPOs are underperformed by 29.06 percent and market capitalisation of the firm, issue premium of the share, face value of the share, issue price, and oversubscription of IPOs are highly influencing IPOs performance in long run. The study has considered 146 companies for identifying the factors influencing the Initial Public Offerings (IPO) in the Bombay Stock Exchange (BSE), India.
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Binti Abu Bakar, Nashirah, and Sofian Rosbi. "Long Term Performance of Islamic Share Price for Initial Public Offerings (IPOs) in Malaysia: Evidence from Sharia-Compliant Companies Listed on the Malaysian Stock Exchange (2006-2010)." INTERNATIONAL JOURNAL OF MANAGEMENT SCIENCE AND BUSINESS ADMINISTRATION 2, no. 6 (2014): 43–57. http://dx.doi.org/10.18775/ijmsba.1849-5664-5419.2014.26.1005.
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The objective of this study is to investigate the long-term (one to three year) performance of initial public offerings (IPOs) for sharia-compliant companies listed on the Malaysian Stock Exchange (MSE) for the period from 2006 till 2010. This study examines why some IPOs companies have a positive, and some IPOs companies have a negative long-term cumulative abnormal return (CAR). KLCI index is used as a benchmark for measuring long-term performance of IPOs for sharia-compliant companies. The empirical results show that the long-term performances for sharia-compliant companies are performed better (16.81 percent) than their benchmark for CAR equal-weight and the result for CAR value-weight show a slightly outperformed their benchmark (-0.07 percent). The results also indicate that CAR for equal-weight and value-weight of IPOs for sharia-compliant companies are significantly higher over performing by 14.58 percent and 4.11 percent respectively in the year 2006. While the results in 2007 (-1.34 percent) and 2008 (-3.43 percent) for value–weight are underperformed. This study also found that the underpricing, offer price, offer size, market type, trading/service industry, consumer product industry, property industry and REIT industry were statistically significant.
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Kuswanto, Randy. "Disclosure of Risk Factors on Prospectus and Initial Public Offerings (IPO) Performance: Evidence from Indonesia." Jurnal Ilmiah Akuntansi dan Bisnis 15, no. 1 (January 20, 2020): 15. http://dx.doi.org/10.24843/jiab.2020.v15.i01.p02.
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The purpose of this study is to investigate how risk information disclosed in prospectus influences the initial returns of initial public offerings (IPOs) in Indonesia. This study collected 62 sample IPOs offered in the Indonesian Stock Exchange from 2017–2018. Ordinary least squares was performed to test the association between risk disclosure and initial returns. Results indicate that prospectus provides risk information associated with initial returns. Both qualitative and quantitative dimensions have a significant negative impact on the initial returns. It can be concluded that risk information has an important role in the underpricing phenomenon. The study has extended the available literature by investigating risk disclosure from a dual perspective. Moreover, qualitative and quantitative assessments both have a direct impact on the initial returns and must be considered in investment decision making.
Keywords: Risk, IPO, underpricing, initial returns
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Wasiuzzaman, Shaista, Fook Lye Kevin Yong, Sheela Devi D. Sundarasen, and Noor Shahaliza Othman. "Impact of disclosure of risk factors on the initial returns of initial public offerings (IPOs)." Accounting Research Journal 31, no. 1 (May 8, 2018): 46–62. http://dx.doi.org/10.1108/arj-09-2016-0122.
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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.