The role of internationalization on the IPO performance of service firms: Examination of initial returns,long-run returns,and survivability

This study examines the effect of internationalization on the initial and long-run IPO performance of service firms. The study discusses that pre-IPO internationalization of service firms contributes to the explanation of long-discussed IPO underpricing phenomenon, and underperformance of IPOs in the long-run. Sample of the study includes 1822 IPO issues conducted by US service firms between 1980 and 2009. Findings of the study suggest that international service firms leave less money on table in their IPOs compared to domestic service firms by providing significantly lower first day returns to their investors on their first day of public trading. Moreover, our findings provide evidence that 3-year cumulative abnormal returns and 3-year buy-and-hold returns of international service firms are significantly higher than domestic service firms, and international service firms outperform domestic service firms in both operating return on assets and operating cash flows in the post-IPO period. Lastly, the study documents that survival rate of service firms subsequent to an IPO issue increases with pre-IPO internationalization.     

The Initial Public Offerings of Restaurant Firms: The Case of Industry-Specific Micromarket Capitalization Offerings

We investigate the pricing characteristics of 59 initial public offerings (IPOs) of firms in the restaurant industry. Many of these offers are by extremely small micromarket capitalization companies, ones that are typically excluded from other studies of IPOs. We find that the choice of underwriter and the issuing company's subsequent financial performance significantly affect the level of underpricing and aftermarket performance. Companies that employ small, regional investment banking houses as underwriters fail to attract much investor interest, resulting in less underpricing and poorer aftermarket performance. In addition, investors appear to accurately appraise those firms that subsequently suffer from poor financial performance. This is demonstrated through greater underpricing to compensate investors for the greater perceived risk.     

Underpricing in new equity listings: A conceptual re-appraisal

This paper appraises the existing approaches used to measure the underpricing of Initial Public Offerings (IPOs). The conceptual problems surrounding the measurement of IPO underpricing are noted to be significant and suggest that underpricing costs and returns may need to be evaluated with reference to the particular characteristics of individual offerings. For example, details of the number of primary shares on offer, the effect on corporate control of listing, the information effects resulting from listing, the liquidity of shares pre-offer, the impact of speculative activity on post-listing firm value and, finally, the actual dating of an IPO may all need to be considered. In short, the existing measures suggested for IPO underpricing do not allow managers/owners in IPO firms or investors in IPO stocks to assess, unequivocally, the respective costs and returns from underpricing in such issues.The authors would like to acknowledge the helpful comments of an anonymous reviewer.     

Do Private Equity Investors Create Value for Italian Initial Public Offerings?

This study analyses the role of private equity (PE) backing in initial public offerings (IPOs) using a dataset of 227 companies that went public on the Milan Stock Exchange between January 1995 and December 2007. The evidence rejects the certification and monitoring hypotheses and provides considerable support for the market power hypothesis. In accordance with Chemmanur and Loutskina (2006) , we suggest that PE investors exploit their relationships with the key IPO market players to attract attention to the IPOs of firms backed by PE, thus obtaining a higher equity valuation (both in the IPO and in the secondary market).     

Government Public Policy, Regulatory Intervention, and Their Impact on IPO Underpricing: The Case of Malaysian IPOs

This study examines the impact of government initial public offering (IPO) regulation intending on promoting public policy. The study examines the results of the implementation of a Malaysian government policy in 1976, which mandated that at least 30 percent of any new shares on an IPO offer be sold to the indigenous Bumiputera population or to mutual funds owned by them. The study examined the short-run and long-run underpricing of Malaysian IPOs and found that Malaysian IPOs are highly underpriced compared to IPOs in developing countries, creating a market microstructure effect. It also confirmed that the Malaysian government's regulatory intervention in spite of noble public policy intentions appeared to be the significant factor for the emergence of an average first-day underpricing increase of Malaysian IPOs by 61 percent during the period after the regulatory economic policy was instituted. Furthermore, the study found that this high underpricing persists even for the long run, in contrast to the long-run performance of IPOs in the United States.     

媒体关注对IPO抑价影响路径探究——基于创业板的经验证据

文章重点探讨媒体关注对我国IPO抑价影响的具体路径。基于上市公司IPO及之前的媒体信息,选取创业板IPO公司作为研究样本,从行为金融学视角对抑价理论进行实证检验。经路径研究发现,高媒体关注通过配置投资者“有限注意力”导致高发行抑价,在个人投资者比例较高的创业板市场上,媒体关注对IPO抑价的影响路径是基于情绪效应而不是认知效应。     

Price limits,investor sentiment,and initial public offering underpricing: A quasi-natural experiment based on ChiNext

Based on the data on initial public offerings (IPOs) listed on Growth Enterprises Market (ChiNext) in 2009–2018, this paper examines the impact of first-day listing price limits on IPO underpricing by adopting the event study and regression discontinuity design models. Our research indicates that the implementation of price limits significantly increases IPO underpricing by intensifying investor sentiment and encouraging market speculation. We also find that price limits have different impacts on companies with different characteristics such as innovation capacity and ownership structure. Our research may suggest how to improve the effectiveness of regulatory policy as well as current ChiNext and IPO market reforms.     

Economic freedom and IPO underpricing

This paper examines how the difference in institutional environments constitutes differential IPO underpricing across countries. Using the Heritage Foundation’s Index of Economic Freedom (IEF) as a proxy for the heterogeneous institutional environment, and a sample of 3728 IPOs from 22 countries and regions over the period 1993–2014, we find that countries with higher economic freedom have significantly less serious IPO underpricing problems. Moreover, we find that among the 10 economic freedom factors covered by theIEF, financial freedom related factors play a more important role in reducing the IPO underpricing problem. Finally, consistent with the market sentiment hypothesis, we find strong evidence that pre-IPO market sentiment influences IPO first-day returns, and that the IPO underpricing problem is less severe when the market is bearish.     

Effects of differential information on the after-market valuation of initial public offerings

This paper examines the after-market for initial public offerings (IPOs), particularly the security valuation effects of structural differences in available information. There is a diversity of information among issuing firms at the time of their offering and particularly under certain market conditions. Because this diversity decreases with time and after-market trading, the IPO market provides an ideal setting for testing errors due to differential information levels in early after-market valuation of IPO firms. We find evidence that during “hot” market conditions and for firms characterized by low levels of available information, the market values of issuing firms are more likely to be overestimated in the immediate after-market. We also find positive overestimation of market values to be more likely for larger IPOs and for those marketed by the less prestigious underwriters.     

On the Demand Elasticity of Initial Public Offerings: An Analysis of Discriminatory Auctions

We analyze 52 Taiwanese IPOs that were introduced through discriminatory auctions (you pay what you bid) between December 1995 and October 1998. The evidence suggests that the elasticity of demand for IPOs in Taiwan through discriminatory auctions is relatively flat. The elasticity is significantly negatively correlated with bidders’heterogeneity, which is consistent with the investor heterogeneity hypothesis. We also find that the average winning bidders earn a significant average abnormal return of 7.83% in the post–IPO market. The post–IPO market abnormal return is positively correlated with the demand elasticity, the idiosyncratic risk of stock returns and the institutional participation rate, and is negatively correlated with the auction clearing price, which is consistent with theory. Finally, there is evidence that informed investors have an incentive to shade their demand for IPOs to avoid the winner’scurse. The most aggressive bidders (the top 5% of the winning bidders) on average incur a small loss of 1.64% (not significant) in the market–adjusted initial returns.     

Multinational Corporate Power,Influence and Responsibility in Global Supply Chains

This study examines the influence of underwriter–auditor relationship (UAR) on pre-initial public offering (IPO) earnings management. Using a sample of Chinese to-be-listed firms, we find that a close UAR, as reflected in repeated collaborations between an underwriter and an audit firm in IPOs, is positively associated with pre-IPO earnings management. This association is more pronounced for firms with politically connected auditors/underwriters, firms with less reputable auditors/underwriters, firms located in provinces with weak legal environment, firms to-be-listed on boards with lax listing requirements, and firms whose auditors are with low industry specialization, and legal liability exposures. We provide further evidence that UAR is associated with greater likelihood of irregular activities in post-IPO period and poorer post-IPO financial performance. To the extent that we control for alternative explanations and potential endogeneity, our results suggest that the collusion incentive is likely to drive repeated collaborations between underwriters and auditors in the Chinese IPO market. Our findings provide interesting implications for auditors, investors, and regulators seeking to understand the Chinese IPO market.     

An Empirical Study of the Impact of CEO Characteristics on New Firms' Time to IPO*

An initial public offering (IPO) is one of the most critical events in the life of a firm. As the IPO market continues to attract attention from both entrepreneurs and investors, research examining the relationship between the firm's characteristics and its IPO performance is growing. In this paper, we use the upper echelon perspective to empirically examine the relationship between the firm's chief executive officer (CEO) and the firm's time to IPO, a relationship that has so far received little attention. Using data obtained from 237 IPOs in the U.S. software industry, we found that the CEO's prior executive experience, network, and age are significantly related to the new firm's time to IPO. This study extends the understanding of the important role of the CEO in the IPO and provides investors greater insight into those variables that influence the speed with which firms go public.     

The Distribution of IPO Holdings Across Institutional Mutual Funds

We examine initial public offering (IPO) holdings in the mutual funds of four large investment banks and five large non-investment banks during the period 1997 through 2002. Investment banks hold IPOs with different characteristics than IPOs held by non-investment banks, and they also tend to hold IPOs in different types of funds than non-investment banks. We classify holdings as to whether the IPO lies outside or inside the fund’s objective. Investment banks hold IPOs outside the fund objective in 27% of the fund/IPO pairs while non-investment banks hold outside their objective in just 5.4% of fund/IPO pairs. We see significant differences in IPO underpricing for both groups as well. For example, when non-investment banks hold IPOs outside a large capitalization fund objective, they select IPOs with 52% higher underpricing as measured by first-day returns.     

Testing a model of signals in the IPO offer process

This study examines agency and market signals related to a sample of high-technology firms seeking an initial public offering (IPO). We test a model of the IPO offer process in high-technology firms. Results indicate that certain pre-market and primary market factors affect the offer price received by entrepreneurs and investors, while the secondary market factor did not. Our model may help entrepreneurs position their organization prior to and during the IPO process.     

Strategic behavior of insiders in initial underpricing and long-run underperformance

We study strategic behavior of insiders in ChiNext IPOs. Since traditional initial underpricing is not appropriate due to the jawbone P/E ratio approach and maximum initial return cap we propose two alternative measures. We identify a significantly positive relationship between insiders' shareholdings and initial underpricing. With no discretion on IPO offer price, the insiders implement earnings management to maintain higher stock prices induced by regulatory changes and high market demand and to facilitate selling their unlocked shares after lockup expiration. We confirm a negative impact from insiders' share sales on long-term performance but don't observe a dramatic underperformance as documented.     

IPO抑价与证券市场制度变迁

IPO抑价是股票市场一个普遍存在的一个现象,我国也不例外。国外的理论重在研究IPO抑价的原因,且这些理论都是建立在市场有效的前提条件之上的,用这些理论解释我国IPO抑价率过高的情况不是特别合适。本文就我国证券市场各个阶段定价方式和发行制度的特征及各阶段IPO抑价率的情况做一简要分析,并针对IPO抑价存在的问题提出对策建议。     

Organizational Virtue and Stakeholder Interdependence: An Empirical Examination of Financial Intermediaries and IPO Firms

Organizational virtue orientation (OVO), an organizational-level construct, refers to the integrated set of beliefs and values that support ethical character traits and virtuous behaviors. To advance the study of organizational virtue, we examine OVO in firms making their initial public offerings (IPOs), with respect to key external stakeholders that serve as financial intermediaries (i.e., venture capital firms and underwriting banks). Drawing on stakeholder and resource dependence theories, we argue that mutual interdependencies occur between financial intermediaries and IPO firms such that venture capital firms’ ownership levels and underwriter reputation are positively associated with the selection of more virtuous IPO firms. We also argue for the moderating relationship of IPO firm age on these main relationships; since IPO firms have more history and information availability, less importance will be placed on OVO in the selection process. In support of our hypotheses, the results of this study suggest the organizational virtue of IPO firms influences the selection decisions of financial intermediaries by reflecting positively on these key stakeholders to improve legitimacy and reputation.     

Venture capitalist participation and the performance of Chinese IPOs

We examine the effects of venture capitalist participation in IPOs in China and find that VC-backed firms are more underpriced than non-VC firms. Both VC-backed and non-VC-backed IPOs experience long-run underperformance; however, VC-backed IPOs perform significantly better. The higher level of underpricing and cost of going public for the VC-backed firms are consistent with the monitoring role of the VC. Finally, the fact that VC reputation is associated with lower underpricing is consistent with the reputational capital theory, which asserts that reputable VCs use their expertise and experience to minimize underpricing in order to preserve their reputational capital.     

The survival and success of Canadian penny stock IPOs

We analyze the survival and success of a large sample of Canadian penny stock initial public offerings (IPOs), launched mostly by small and unprofitable firms from 1986 to 2003. The failure rate of these IPOs is lower than in the US for larger IPOs, probably because of lax delisting rules and the market’s capacity to refinance non-profitable firms. The survival of new issuers is significantly associated with their characteristics at the IPO and with the level of initial listing requirement they meet. The involvement of reputable intermediaries in the IPO process mitigates this effect. Success, estimated by the graduation to a senior exchange, is not linked to the financial conditions at the IPO. Overall, Canada seems to have developed a particular strategy to finance the growth of small firms even if the propensity to fail of firms listed at a pre-revenue stage is very high.