On the anticipation of IPO underpricing: Evidence from equity carve-outs |
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| Authors: | Lawrence M Benveniste Huijing Fu Paul J Seguin Xiaoyun Yu |
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| Institution: | aGoizueta Business School, Emory University, United States;bNeeley School of Business, Texas Christian University, United States;cCarlson School of Management, University of Minnesota, United States;dKelly School of Business, Indiana University, United States |
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| Abstract: | We investigate IPO market efficiency using a sample of equity carve-outs offered during the period of 1985–2005. Unlike IPOs examined in previous studies where trading during the pre-IPO book-building period does not exist and trading on the IPO date is rationed, in equity carve-outs, investors can trade in the non-rationed market for shares of the parent, which holds a significant fraction of the subsidiary. We find that the subsidiary's initial day return is significantly related to its parent's return over the book-building period, but unrelated to its parent's contemporaneous return. Neither the pre-IPO price revision of the subsidiary nor the return to the parent on the initial trading day can be predicted. While the portion of the subsidiary's initial return unpredictable from information available during the book-building period is significantly related to its parent's contemporaneous return, the predictable component of the initial return is not. We interpret these results as evidence consistent with market efficiency. |
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