Detecting hot and cold cycles using a Markov regime switching model—Evidence from the Chinese A-share IPO market

This paper focuses on detecting hot and cold IPO cycles in the Chinese A-share market using a Markov regime switching model. We introduce a set of observations to measure IPO activities, which include numbers of IPOs issued, levels of underpricing, market conditions and duration time from prospectus and listing, and thus establish a model to estimate these activities' average performance in hot and cold periods respectively. It is found that a hot period is related with an abundant supply of IPOs, high levels of underpricing, positive market conditions and short waiting time to listing after prospectus issue. Further, this paper depicts the turning points of hot and cold periods across the period from 1994 to 2005 for each observation. The cycles detected by the number of IPOs per month are the benchmark and then these cycles' robustness is tested by the other observations.     

IPO underpricing: A social comparison perspective

This paper studies a social comparison perspective on IPO underpricing. The social comparison theory in behavioral psychology suggests that when people do not know how to make a decision or are exposed to new information, they refer to the behavioral norm of the public or the behavior of others to frame their decisions. I argue that when IPO firms and underwriters are uncertain about an IPO firm's intrinsic values, they refer to similar IPO issuing firms in the same industry that went public earlier to determine the IPO offer price. Using a sample of Taiwan IPOs, I find evidence that supports the social comparison explanation of IPO underpricing.     

Soft Strategic Information and IPO Underpricing

Using content analysis, we measure the impact of soft information, derived from words in initial public offering (IPO) registration documents, on IPO pricing efficiency. First, using 2,298 U.S. IPOs from 1996–2008, we find that an IPO document's strategic tone correlates positively with the stock's first-day return; more frequent usage of positive and/or less frequent usage of negative strategic words leads to more IPO underpricing. Second, we find that an IPO document's strategic tone is negatively correlated with the stock's long-run return. Together, these findings imply that investors initially misprice soft information in registration statements, which mispricing is eventually corrected. Additionally, we create new content-analysis libraries for strategic words and introduce a survey-based library creation method and word-weighting system.     

The impact of pre-IPO performance pressure on research and development investments of an IPO firm: Evidence from China

We derive a simple model to show that pre-IPO performance pressure has a negative impact on an IPO applicant's research and development investments. The findings from the Chinese IPOs in the growth enterprise market (GEM) are consistent with the model's predictions. Further analysis suggests that when the time to listing is shorter, the adverse impact of performance pressure on R&D investments is stronger. While the objective of the GEM is to encourage innovative firms to raise new capital via IPOs to enhance their innovations in the future, the cutting of R&D investments to enhance the probability of receiving IPO approval defeats the purpose. Our findings suggest that it may be useful for a regulatory authority to consider multi-dimensional criteria in IPO approvals for GEMs instead of heavily relying on the pre-IPO performance to sustain a healthy IPO market and innovation activities of a country.     

Price clustering of IPOs in the secondary market

This article studies the integer price clustering of Initial Public Offerings (IPOs) in the secondary market trading during the first 240 trading days after their IPO dates. The results indicate the huge difference between the integer price frequency of IPOs in the primary market and that of matched stocks in the secondary market almost disappears on the first trading day after IPO. The integer price frequency of IPOs is still significantly higher than that of matched stocks during the first 240 trading days. However, after controlling for price level, trading characteristics and IPO price support, the integer price frequency of IPOs conforms to that of matched stocks and that those IPOs with integer offer prices have the same integer price frequency as IPOs without.     

What causes the IPO underpricing? New evidence from China’s SME market

ABSTRACT

We study 10-year IPO initial returns in China’s small and medium-sized enterprise (SME) board between 2006 and 2016, including 755 IPO samples. At the same time, we test how policy changes of IPO pricing and trading mechanism affect first-day initial returns. Our article adopts the stochastic frontier approach to estimate the fair value of IPOs and decompose the components of deliberate underpricing and mis-valuation factors, then using linear regressions investigate correlation between first-day initial returns and deliberate underpricing or mis-valuation factors. We find it is mis-valuation factors, especially, the irrational behaviour of individual investors that mainly cause the IPO underpricing in China’s SME market rather than deliberate underpricing. Besides, influenced by IPO pricing policies, the characteristic of IPO pricing varies from period to period.     

IPOs’ signalling effects for speculative stock detection: evidence from the Stock Exchange of Thailand

Using a unique data set from the Thai stock market about the so-called, ‘Turnover List (TOL)’ of speculative stocks spanning the period 2004–2012, we investigate and provide new evidence on the relationship between IPOs’ pricing effects and subsequent classification as speculative investments. To be more specific, we examine the signalling effects for the detection of speculative stocks in relation to the degree of their prior IPOs underpricing. We also employ the market-feedback hypothesis to investigate this signalling process. Our results reveal a significant positive relationship between the magnitudes of the IPO underpricing and the probability of an IPO firm being classified officially as speculative on the TOL. Furthermore, we find that a 6-month abnormal return after going public increases the probability of speculative dealing in the IPOs. Next, we consider all listed firms in the Thai stock market and highlight the role of both abnormal return and trading volume in the transmission of probability for appearing on the TOL. In addition, we find that IPOs and non-dividend paying companies further increase the risk of being on the TOL.     

The dynamic impact of macroeconomic factors on initial public offerings: evidence from time-series analysis

This article examines the explanatory power and the dynamic impact of macroeconomic conditions on Initial Public Offering (IPO) activities in US during the period from 1970 to 2005. Applying time-series econometric techniques, we find the existence of long-run equilibrium relationships between IPO activities and selected macroeconomic variables. Stock market performance and volatility are shown to play the most important role in the timing of IPOs. The Fed funds rate and the 10 year US Treasury Bond (TB) yield play a comparable role in determining the amount of proceeds raised in the IPOs. There also exist different short-run dynamic adjustment mechanisms between IPOs and macroeconomic factors towards the long run equilibrium path and they are mostly completed within the period of 6 months to 1 year. The results have some useful implications for forecasting IPO activities.     

IPO underpricing and flotation methods in Taiwan – a stochastic frontier approach

Adopting stochastic frontier analysis, this article studies the pricing model and underpricing phenomenon of the initial public offerings (IPOs) in Taiwan and further elucidates the potential impact of offering mechanisms on underpricing. The sampling period is from 1996 to 2003, in which 647 IPOs are selected. Empirical results suggest that issuing firms with greater earning potentials, less risk or less asymmetric information have lower underpricing. Furthermore, the variables included to explain underpricing are mostly significant, especially the proxy variable for flotation method. Observed mean IPO underpricing is 20.59% in the sample period, compared to 17.12% for the subgroup using the auction method. This statistically significant difference implies that the introduction of the auction method can help reduce IPO underpricing.     

Possibility of an Experimental Approach to Investment Studies

Differences between male and female management style, risk aversion, investment strategies, and financial decision making can be found in economic, management, psychology, and social literature. There are no published studies, however, linking gender issues with valuation. In this article, we consider differences in pricing female- versus male-led initial public offerings. Specifically, we find no difference in firm characteristics between a female-led and a male-led IPO, and no difference in underpricing between male-led and female-led IPOs after controlling for firm-specific variables. Our evidence suggests that in a market such as IPOs, where subjects share more similar opportunity sets, wealth, and knowledge, gender bias does not exist.     

Price Clustering of Chinese IPOs: The Impact of Regulation,Cultural Factors,and Negotiation

During June 2009–May 2012, the China Securities Regulatory Commission (CSRC) suspended window guidance that limits issue prices. Using this regime change as a natural experiment, we test the combined effects of regulation, culture, and negotiation on price clustering of Chinese IPOs. The proportion of IPOs priced on round number 0 increases from 42.58% during sample periods with window guidance to 79.81% during sample period without window guidance, a level similar to that reported in developed markets . Moreover, we document a connection between whole CNY pricing of Chinese IPOs and several uncertainty measures including a unique uncertainty proxy defined as the time gap between the IPO date and the listing date. Second to the round number 0, issuing firms favour number 8 that associates with fortune, particularly during sample periods with window guidance. Our findings that price restrictions limit the power of negotiations but not the influence of cultural factors contributing to the understanding of price formation process.     

Underpricing of Initial Public Offerings: The Case of Portugal

This paper analyzes the initial public offering (IPO) underpricing phenomenon in Portugal. We show that the ‘hot issue’ market of 1987, coinciding with a speculative bubble in the stock market, is well explained by investor sentiment theories and that the issuing firms seized a ‘window of opportunity’ provided by excessive demand to offer and list their shares. In IPOs prior to the 1987 crash, underpricing is very high while there is a strong reversion to fundamentals in the long run. In the period 1988–2004, we find lower IPO underpricing and overall no evidence of long-run underperformance of IPO firms. Bookbuilding IPOs are more underpriced than other price setting systems IPOs, and firms with seasoned public offerings show abnormal returns in the long run.

行业收益、国际航运业IPO与船舶融资选择——基于1984～2007年数据分析

在阐述行业收益差异基础上分析影响航运股权融资因素,针对航运企业IPO的不同表现特征选取了1984～2007年间,在主板证券交易所首次发行股票的143家全球航运企业,通过计算超常持有期收益率(BHAR)和累计超常收益率(CAR),分析其短期与长期价格表现。认为航运企业首次公开发行抑价与公司年龄、上市所在交易所的声誉和发行期间市场行情正相关,与承销商声誉负相关;从长期来看,航运企业首次公开发行五个月后表现欠佳。希望通过研究某些体制因素如何影响航运企业IPO抑价,以期对船舶融资选择提供相关建议。     

风险投资与中国IPO公司盈余管理行为的实证研究——基于深圳和香港创业板的数据

本文以2009—2011年间在我国深交所创业板上市的276家以及2002—2011年在港交所创业板上市的108家IPO公司为样本,对风险投资与盈余管理之间的关系进行研究,旨在揭示我国深圳创业板和香港创业板两个市场上,风险投资是否可以约束IPO过程中的盈余管理行为,两个市场上风投的影响程度是否相同。研究发现,在两个创业板市场上,都显著存在正向盈余管理行为,但是风险投资并没有起到认证监督作用,即没有显著抑制上市公司盈余管理行为,风险投资功效在中国市场不显著。     

Financial characteristics of Australian initial public offerings from 1994 to 1999

A variety of financial characteristics of Australian initial public offerings (IPOs) for the period 1994–1999 are explored. A number of previous Australian studies have investigated the initial day underpricing and longer term underperformance of IPOs and this study updates those papers. This paper partitions the IPO data into no liability/limited liability; share option/no share option; underwriter option/no underwriter option and dividend reinvestment/no dividend reinvestment characteristics to better understand the types of IPOs that list on the Australian Stock Exchange. The data supports the findings of previous studies in that IPOs are underpriced at the time of listing and underperform the market in the first year following their listing.     

Underpricing of venture backed IPOs: a meta-analysis approach

ABSTRACT

Listing firms are subject to underpricing mainly because of asymmetries of information, but IPOs backed by a venture capitalist are generally found to be subject to less underpricing. Although this condition is commonly verified by the empirical evidence, a consistent number of studies finds contrasting results. This paper aims to answer to the question: do venture capitalists effectively reduce underpricing at IPO? Evidence provides a negative answer, with venture-backed IPOs having higher underpricing especially in US markets. Meta-regression results confirm the different effect of VC between US and European IPOs. Results overall suggest that other explanations on underpricing might hold in US markets.     

What determines the level of IPO gross spreads? Underwriter profits and the cost of going public

This paper addresses three empirical findings of the literature on initial public offerings. (i) Why do investment banks earn positive profits in a competitive market? (ii) Why do banks receive lower gross spreads in venture capitalist (VC) backed than in non-VC backed IPOs? (iii) Why is underpricing more pronounced in VC than in non-VC backed IPOs? While each phenomenon can be explained by itself, there is no explanation yet why all three occur simultaneously. We propose an integrated theoretical framework to address this issue. The IPO procedure is modeled as a two-stage signaling game: In the second stage banks set offer prices given their private information and the level of the spread. Issuing firms anticipate their bank's pricing decision and, in the first stage, set spreads to maximize expected revenue. Investors are aware of this process and subscribe only if their expected profits are non-negative. Firms' equilibrium spreads are large so as to induce banks to set high prices, allowing banks to make profits. Superiorly informed VC backed firms impose smaller spreads but face larger underpricing than non-VC backed firms.