IPO underpricing,signaling, and property returns |
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Authors: | Fabian Brämisch Nico Rottke Dirk Schiereck |
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Institution: | (1) Anderson School of Management, University of New Mexico, 1924 Las Lomas NE, Albuquerque, NM 87131, USA;(2) Department of Business, University of Wisconsin-Parkside, 900 Wood Road, P.O. Box 2000, Kenosha, WI 35141, USA;(3) Department of Finance, Yuan Ze University, 135 Yuan-Tung Road, Chung-Li, Taoyuan, 32003, Taiwan |
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Abstract: | This paper investigates whether IPO signals reveal proprietary information about the prospects of an issuing firm’s underlying
industry. By analyzing a sample of European property company (EPC) IPOs from 1997 to 2007, we take advantage of a heterogeneous
set of industry performance measures, i.e., yields and total returns of direct property investments in various European property
markets that can be clearly assigned to each individual IPO. The results reveal that the main signal of interest, underpricing,
is in fact positively related to average property yields for a 12-month post-IPO period; a result that supports our assumption.
Other signals, as proposed in previous research, do not appear to contain any information about the prospects of the IPO firm’s
target property investment market. We also show that total returns seem to be a biased measure for direct property performance.
Further tests for the signaling model’s preconditioned presence of information asymmetry among EPCs reveal that underpricing
levels are a function of company-specific ex ante uncertainty proxies. In contrast, property-specific ex ante uncertainty
proxies do not explain underpricing levels. |
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