Impact of Sarbanes Oxley Act on initial public offerings: new evidence from reverse leveraged buyouts

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nischala P. Reddy ◽  
Ben Le ◽  
Donna L. Paul
Keyword(s):  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Market Competition ◽  
Mediating Effect ◽  
Policy Implications ◽  
Going Public ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Public Offering ◽  
The Impact

Purpose This paper aims to investigate how the passage of the Sarbanes Oxley Act (SOX) impacted the likelihood and timing of the decision of leveraged buyout (LBO) firms to exit via initial public offering (IPO) (reverse-LBO) and the mediating effect of reputed private equity (PE) firms. Design/methodology/approach The sample comprises firms that went private via LBO between 1990 and 2018. The authors use logistic and ordinary least square regression models to compare the effect of SOX on the re-listing decision and the time taken to re-list. Findings LBO firms were less likely to exit via public offering after SOX, and the time from LBO to IPO was significantly longer for exiting firms post-SOX. PE firm reputation partially reversed the reluctance to exit via IPO and shortened the time to exit. Research limitations/implications The primary focus is RLBOs; the authors do not directly examine other methods of LBO exit. The findings have policy implications for unintended impacts of SOX. Despite the benefits of increasing transparency and protecting investors, SOX reduced the likelihood of going public and increased the time to IPO, potentially reducing product market competition. Originality/value RLBOs present a unique experimental setting as the authors can test the impact of SOX on both the likelihood and time to go public, whereas prior literature using first-time IPO samples are able to test only the likelihood. The authors also show that the reputation of the advising PE firm attenuates the reluctance and time taken for RLBOs to re-list. The authors are, thus, able to provide a new perspective on the impact of SOX on the going public decision.

To list or not to list, that is the question: new evidence from the performance of Vietnamese commercial banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tuan Quoc Le ◽  
Ha Ngan Duong ◽  
Phuong Thanh Nguyen
Keyword(s):  
Initial Public Offering ◽  
Financial Institutions ◽  
Commercial Banks ◽  
Positive Impact ◽  
Policy Implications ◽  
Bank Performance ◽  
Data Set ◽  
Going Public ◽  
Content Type ◽  
The Impact

Purpose This paper aims to investigate the decisions of listing for Vietnamese banks and the impact of listing on bank performance. Design/methodology/approach A longitudinal data set of 30 commercial banks in the period of 2006–2018 with various univariate and multivariate tests is used. Findings This study found that listing is positively associated with bank profitability. The results are consistent even after the control for potential endogeneity problems by propensity score matching methodology and Heckman selection bias models. Further analysis suggests some new alternative channels for the positive impact, namely, the increased quality of information disclosure, technological development and income diversification of commercial banks after listing. Practical implications Hence, this paper provides recommendations and policy implications for regulatory bodies regarding the listing of commercial banks in Vietnam. Originality/value The contributions to the literature are three-folds. First, this study contributes to a strand of literature on the impact of going public [initial public offering (IPO)/listing] of financial institutions on their performance. While the literature on non-financial firm performance post-going public is ample, few have directly considered the IPO/listing of banks and other financial institutions. Second, in further looking at the impact of listing on bank performance, this study also sheds some light on the new possible channels of the effect and provides evidence of new channels. Then, last but not least, the case of Vietnam could possibly yield interesting results for a transitory stock market. From the evidence, the recommendations and policy implications for a listing of Vietnamese banks are provided.

Edifying role of corporate reputation in new issue market: Indian evidence

2019 ◽  
Vol 11 (2) ◽  
pp. 159-170
Author(s):  
Amanpreet Kaur ◽  
Balwinder Singh
Keyword(s):  
Initial Public Offering ◽  
Capital Market ◽  
Corporate Reputation ◽  
Critical Mass ◽  
Ipo Underpricing ◽  
Going Public ◽  
Content Type ◽  
External Agents ◽  
The Impact

PurposeThe purpose of this paper is to examine the relationship between corporate reputation and initial public offering (IPO) underpricing for a sample of 269 IPOs hitting the Indian capital market for the first time during the period ranging from April 1, 2007 to November 8, 2016.Design/methodology/approachThe study is based on secondary data (of 269 Indian companies going public) obtained from websites of capital market, Chittorgarh and Securities and Exchange Board of India (from where prospectus of each company was downloaded individually to extract data on financial variables). The study devises the technique of multivariate regression analysis to arrive at the results.FindingsThe results of the study reveal that corporate reputation serves as a signal to naive investors that assures them of issuer company’s credibility, resulting in lower underpricing. In addition to it, the study also observes the level of gender diversity on Indian boards. It is disappointing to notice low level of female representation on Indian boards and the improvement if any made in the number of female directors on Indian boards is due to provisions of new companies’ act, 2013 that mandates at least one women director on the board of every listed company. Thus, females do not constitute a critical mass on Indian boards.Research limitations/implicationsThe current study scrutinizes the impact of corporate reputation on IPO underpricing only. Furthermore, the study analyzes the underpricing of only book built IPOs. Incorporating both book built and fixed price IPOs could have provided better insights into the issue.Practical implicationsThe study outlines significant implications for managers of issuer company to portray company’s own reputation as a signal instead of showcasing borrowed reputation of external agents at the crucial juncture of going public.Originality/valueMany signals portraying quality of the offering are sent by issuer company in public arena to make IPO launch a successful event. Among many such signals like underwriting reputation, auditor reputation, director’s and CEO’s reputation, the corporate audience has started giving more impetus to issuer company’s own reputation. Thus, financial academia witnessed a paradigm shift from external agents reputation to internal agent’s reputation and now the loci of interest has shifted to company’s own reputation. Giving emphasis to corporate reputation seems more relevant in emerging economies like India where naive investors rely on their own judgments while making investment decision who take clue from various signals to infer quality of the offer. It is momentous to observe whether reputation of the company acts as a conspicuous signal to decipher IPO quality. Furthermore, there hardly exists any empirical research directly examining the impact of corporate reputation on IPO underpricing in the Indian context. Hence, the present study is a modest attempt to fill this gap in literature.

Initial public offerings and air pollution: evidence from China

2015 ◽  
Vol 9 (1) ◽  
pp. 99-114 ◽  
Author(s):  
Yan Luo ◽  
Xiaolin Qian ◽  
Jinjuan Ren
Keyword(s):  
Air Pollution ◽  
Corporate Governance ◽  
Initial Public Offerings ◽  
Ambient Air ◽  
Environmental Conservation ◽  
Policy Implications ◽  
Chinese Government ◽  
Content Type ◽  
Public Offerings ◽  
The Impact

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.

Assessing the Impact of Customer Concentration on Initial Public Offering and Balance Sheet–Based Outcomes

2017 ◽  
Vol 81 (6) ◽  
pp. 42-61 ◽  
Author(s):  
Alok R. Saboo ◽  
V. Kumar ◽  
Ankit Anand
Keyword(s):  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Balance Sheet ◽  
Performance Outcomes ◽  
Customer Relationships ◽  
Negative Effects ◽  
Public Offerings ◽  
Prior Literature ◽  
Public Offering ◽  
The Impact

Using the notion of customer concentration, the authors argue that firms should evenly spread their revenues across their customers, rather than focusing on a few major customer relationships. Prior literature suggests that major customers improve efficiency and provide access to resources, thereby producing positive performance outcomes. However, building on industrial organizational literature and modern portfolio theory, the authors argue that concentration of revenues reduces the supplier firm's bargaining power relative to its customers and hurts the ability of the supplier firm to appropriate value, which, in turn, hurts profits. Using a sample of 1,023 initial public offerings (IPOs) and robust econometric methods, they find that customer concentration reduces investor uncertainty and positively impacts IPO outcomes, but significantly hurts balance sheet–based outcomes (e.g., profitability). The results suggest that a 10% increase in customer concentration reduces profitability by 3.35% (or about $7 million) in the subsequent year, or 9.4% cumulatively over the next four years (or about $20.32 million). Further, the authors find that the negative effects of customer concentration decrease with increase in organizational (marketing, technological, and operational) capabilities and increase with low customer credit quality.

scholarly journals Signalling, Insider Trading, And Post-Offering Performance: The Case Of Initial Public Offerings

2011 ◽  
Vol 9 (3) ◽  
pp. 80 ◽  
Author(s):  
Thomas H. Eyssell ◽  
Donald R. Kummer
Keyword(s):  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Insider Trading ◽  
Going Public ◽  
Public Offerings ◽  
Corporate Insiders ◽  
Ipo Pricing ◽  
Public Offering

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.

Determinants of the exit value in European venture capital-backed technology startups

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Benedetta Montanaro ◽  
Angelo Cavallo ◽  
Giancarlo Giudici ◽  
Antonio Ghezzi
Keyword(s):  
Human Capital ◽  
Venture Capital ◽  
Initial Public Offering ◽  
New Ventures ◽  
Content Type ◽  
Investor Heterogeneity ◽  
Public Offering ◽  
The Impact ◽  
The Empirical Analysis ◽  
Technology Startups

Purpose This study aims to analyze the impact of different exit alternatives, investor presence and founders’ human capital on the exit value of European venture capital (VC)-backed high technology startups. Design/methodology/approach The empirical analysis is based on a sample of 107 European firms that obtained an exit through Merger&Acquisition (M&A) or an initial public offering (IPO) between 2010 and 2017, backed by VC investors. Findings This study provides empirical evidence on how different exit alternatives, investor heterogeneity and founders’ human capital may affect the exit value of European VC-backed startups. Exiting through an IPO and retaining a larger equity stake are positively correlated with the exit value. The presence of business angels and non-governmental VC firms is associated with larger valuations. Founders’ previous education was positively correlated with the exit value. Originality/value Exit strategies in technology startups are essential to capitalize investors’ efforts and reinvest cash into new ventures, supporting the development of entrepreneurial ecosystems and countries’ competitiveness. The results of this study provide interesting hints for policymakers and contribute to an in-depth understanding of the drivers of exit valuation for startups.

Impact of competition on fund disclosures and consumer search costs

2019 ◽  
Vol 18 (2) ◽  
pp. 198-220
Author(s):  
Sitikantha Parida
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Market Competition ◽  
Search Costs ◽  
Consumer Search ◽  
Relative Performance ◽  
Policy Implications ◽  
Content Type ◽  
The Impact ◽  
Illiquid Assets

Purpose The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs. Design/methodology/approach The empirical analysis merges the Center for Research in Security Prices (CRSP) survivorship bias-free mutual fund database, the Thompson Financial CDA/ Spectrum holdings database and the CRSP stock price data. The sample covers the time period between 1993 and 2010 and OLS and logistic regressions are used to investigate the impact of competition on fund disclosures. Findings This paper finds that mutual fund disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use portfolio disclosures as a marketing tool to attract investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With competition, the likelihood of receiving new investments decreases for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets, and hence, the effect is stronger for them. Originality/value This paper has important policy implications for disclosures in a market where relative performance matters. The traditional view is that competition induces voluntary disclosure because entities would like to differentiate themselves from competitors, and hence, competition should increase market transparency. However, this paper sheds light on the negative consequence of competition in a tournament-like mutual fund market.

scholarly journals A chronological review of the Australian litigation risk environment surrounding IPO earnings forecasts

2018 ◽  
Vol 30 (2) ◽  
pp. 168-186 ◽  
Author(s):  
Tracy C. Artiach ◽  
Gerry Gallery ◽  
Kimberley J. Pick
Keyword(s):  
Initial Public Offering ◽  
Historical Analysis ◽  
Earnings Forecasts ◽  
Institutional Setting ◽  
Regulatory Change ◽  
Litigation Risk ◽  
Risk Environment ◽  
Content Type ◽  
Public Offering ◽  
The Impact

Purpose This paper aims to provide a chronological review of changes in the institutional setting regulating Australian initial public offering (IPO) firms’ earnings forecasts over the period from 1994 to 2012. The changing forecasting environment covers both IPO firms’ prospectus earnings forecasts and post-listing updates to those forecasts. Design/methodology/approach This historical analysis reviews the changes in corporate regulation and enforcement, Australian Securities Exchange listing requirements and the outcomes of securities class actions (SCA) that affect IPO firms’ earnings forecasts. Findings A review of the institutional setting regulating Australian IPO firms’ earnings forecasts reveals two inter-temporal shifts in (increasing) litigation risk over 1994-2012 period which have arisen from more onerous regulations, stronger regulatory enforcement and a more active SCA market. The authors document the corporate responses to those shifts. Originality/value This is the first study to comprehensively document research of an inter-temporal litigation risk shift on IPO firms’ earnings forecasting behaviour. It therefore provides a formative base and a useful resource for researchers, practitioners and investigators (regulators, forensic accountants, etc.) when examining the impact of the changes on IPO firms’ forecasting behaviour following regulatory change and enforcement.

IPO overvaluation and returns prior to lockup expiration

2017 ◽  
Vol 43 (12) ◽  
pp. 1392-1410 ◽  
Author(s):  
K. Stephen Haggard ◽  
Yaoyi Xi
Keyword(s):  
Stock Returns ◽  
Initial Public Offering ◽  
Price Reduction ◽  
Content Type ◽  
Investment Portfolios ◽  
Public Offering ◽  
Lockup Expiration ◽  
The Impact ◽  
Practical Implications ◽  
Lockup Period

Purpose Conventional wisdom says that the price reduction stocks experience at expiration of the initial public offering (IPO) lockup period is due to relaxation of selling constraints. Findings from more recent literature question this explanation. The purpose of this paper is to examine a different cause for this price drop, IPO overvaluation. Design/methodology/approach Using the IPO overvaluation measures of Purnanandam and Swaminathan (2004), the authors examine IPO lockup period stock return differences between stocks in the highest and lowest overvaluation quintiles. Findings The authors show that the IPO lockup period price reduction is strongly related to overvaluation. Zero-investment portfolios long in the lowest overvaluation quintile and short in the highest overvaluation quintile of IPO firms have positive significant returns. Practical implications IPO investors can use the technique to identify firms likely to underperform in the IPO lockup period, potentially avoiding bad investments. Originality/value This is the first study to link IPO lockup period stock returns to IPO overvaluation, providing evidence on the impact of both overvaluation and short-selling constraints on stock returns in the IPO lockup period.

The impact of the reputation of underwriter and sponsoring representative on IPO underwriting fees

2016 ◽  
Vol 6 (4) ◽  
pp. 342-366 ◽  
Author(s):  
Chao Chen ◽  
Xinrong Wang
Keyword(s):  
Initial Public Offering ◽  
Political Connection ◽  
Content Type ◽  
Underwriting Fees ◽  
The One ◽  
Public Offering ◽  
The Impact ◽  
New Evidence ◽  
Practical Implications

Purpose The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and further investigates the role of ownership and political connection. Design/methodology/approach The methodology includes three models. Model 1 empirically investigates the effect of underwriter’s reputation on underwriting fee. Model 2 studies the effect of sponsoring representative’s reputation on underwriting fee. Model 3 further examines the effect of underwriter’s reputation and sponsoring representative reputation on the underwriting fee controlling for the impact of ultimate controlling ownership and political connection. Findings The study documents that underwriters’ and sponsoring representatives’ reputation can result in reputational premiums. In the IPO of state-owned enterprises (SOEs), the reputation of underwriters and sponsoring representatives does not significantly affect the underwriting fees. In the IPO of non-state-owned enterprises (NSOEs), there is a significantly positive correlation between underwriters’ and sponsoring representatives’ reputation and underwriting fees. Further research results show that, on the one hand, the effect of underwriters’ and sponsoring representatives’ reputation on underwriting fees is not significant in the IPO of NSOEs with political connection. On the other hand, underwriting fees are positively associated with underwriters’ and sponsoring representatives’ reputation in the IPO of NSOEs without political connection. Research limitations/implications The sponsoring representative’s fee is not disclosed separately, which makes it difficult to distinguish the incremental effect from underwriter’s services and reputation. Practical implications NSOEs relative to SOEs are more likely to pay higher underwriting fees for hiring underwriter and sponsoring representative with better reputation during the process of IPO. Social implications The reputation of underwriter and sponsoring representative does not matter to SOEs but does matter to NSOEs. However, NSOEs’ political connection affects underwriter fees. Originality/value This paper provides new evidence of sponsoring representatives’ reputation and political connection on the underwriting fees in the IPO in Chinese SOEs and NSOEs.

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