scholarly journals Reducing asymmetric information in venture capital backed IPOs

2016 ◽  
Vol 42 (6) ◽  
pp. 553-568 ◽  
Author(s):  
Diego Escobari ◽  
Alejandro Serrano
Keyword(s):  
Asymmetric Information ◽  
Venture Capital ◽  
Initial Public Offerings ◽  
Capital Expenditures ◽  
Group Affiliation ◽  
Specific Group ◽  
Content Type ◽  
Public Offerings ◽  
Tangible Assets ◽  
Practical Implications

Purpose – The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group. Design/methodology/approach – The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to estimate the mixture model via maximum likelihood. Findings – The authors find strong evidence that companies can be separated into two groups based on how IPO returns are determined. For companies in the first group the results are similar to previous studies. For companies in the second group the authors find that profitability is mainly affected by the reputation of the seed VC and capital expenditures. Tangible assets and age help explain group affiliation. The authors also motivate the findings for a continuum of heterogeneous IPO groups. Practical implications – The proposed mixture approach helps decrease asymmetric information for investors, regulators, and companies. Originality/value – The mixture methods help decrease asymmetric information between investors and firms improving the probability of making profitable investments. Separating between groups of IPOs is crucial because different determinants of an IPO operating performance can potentially have opposite effects for different groups.

scholarly journals The Venture Capital Certification Role In Initial Public Offerings

2016 ◽  
Vol 32 (2) ◽  
pp. 479 ◽  
Author(s):  
Tarek Miloud
Keyword(s):  
Asymmetric Information ◽  
Venture Capital ◽  
Information Asymmetry ◽  
Initial Public Offerings ◽  
High Frequency ◽  
Price Volatility ◽  
Price Difference ◽  
Public Offerings ◽  
North American Market ◽  
The Cost

Using high frequency Euronext Paris data, the paper examines the market microstructure trading characteristics of venture backed initial public offerings (IPOs) in the French market. Previous North American market studies approve the role played by venture capital (VC) firms for the certification of IPOs and their role in reducing the asymmetric information between investors. The study sample is composed of IPOs realized during the period 2000–2013 both with and without VC firm involvement. The results present no significant price difference between both IPO types. The cost of asymmetric information and of price volatility is higher for the VC-backed operations. Moreover, the study shows that underpricing is positively correlated to the cost of the information asymmetry. Contrary to previous studies, the results show that the effects of VC firm certification and monitoring are not perceived by IPO investors in the French market.

Exploring intellectual capital disclosure as a mediator for the relationship between IPO firm-specific characteristics and underpricing

2015 ◽  
Vol 16 (3) ◽  
pp. 639-660 ◽  
Author(s):  
Shaw Warn Too ◽  
Wan Fadzilah Wan Yusoff
Keyword(s):  
Initial Public Offerings ◽  
Intellectual Capital ◽  
Design Methodology ◽  
Firm Characteristics ◽  
Content Type ◽  
Public Offerings ◽  
Intangible Resources ◽  
The Cost ◽  
The Relationship ◽  
Practical Implications

Purpose – The purpose of this paper is to examine the direct and indirect impact of firm-specific characteristics on the level of underpricing among Malaysian initial public offerings (IPOs). Design/methodology/approach – Content analysis of IPO prospectuses was used for 331 firms underwent listing between 2002 and 2008. The extent of disclosure was computed by applying the disclosure index of Bukh et al. (2005). Findings – Of the five firm characteristics examined, there is a direct relationship between the firm’s financial performance and the level of foreign activity, and the level of underpricing, instead of being mediated through disclosure. However, some firm characteristics have direct influence on the extent of disclosure but do not have any influence on underpricing. Research limitations/implications – This empirical study concentrates on the Malaysian IPOs on a single disclosure mechanism. Other disclosure items can be examined together with the intellectual capital disclosure items. Practical implications – As the findings reveal that the extent of disclosure is relatively low in influencing the level of underpricing. Had the disclosure been higher, it may have some influence on underpricing. The accounting governance board need to regulate the disclosures of the intangible resources so that the level of underpricing can be minimized. Originality/value – This study provides new insight for the examination of direct and indirect (through disclosure) association between firm-specific characteristics and underpricing. The findings shed some lights to the IPO issuers to enhance disclosure so that the cost of capital can be reduced.

The directs costs of A-REIT IPOs

2015 ◽  
Vol 33 (2) ◽  
pp. 196-204 ◽  
Author(s):  
Bill Dimovski
Keyword(s):  
Initial Public Offerings ◽  
Global Financial Crisis ◽  
Direct Costs ◽  
Real Estate Investment Trust ◽  
Content Type ◽  
Public Offerings ◽  
Factors Influencing ◽  
Using Data ◽  
The Cost ◽  
Practical Implications

Purpose – Direct costs of Australian Real Estate Investment Trust (A-REIT) initial public offerings (IPOs) were last reported in the literature using data to 2004. Much has occurred since then. The purpose of this paper is to introduce and include the A-REIT IPOs over the last ten years and examine the cost and the factors influencing the percentage underwriting and percentage total direct costs by A-REITs IPOs. The study also investigates specifically whether the utilization of an underwriter (who guarantees the success of the capital raising) rather than a stockbroker (who does not guarantee such success) costs significantly more. Design/methodology/approach – The study examines 87 A-REIT IPOs from January 1994 until December 2013. An OLS regression is performed to identify significant influencing factors on percentage underwriting costs and percentage total direct capital raising costs. Findings – The study finds that larger capital raisings and those with large investor or institutional involvement identified in the prospectus are significant in reducing underwriting costs. The study does not find that underwritten IPOs are significantly more expensive (or cheaper) than those not underwritten. Additionally, the size of the issue, whether the firm offers stapled securities (is internally managed) and has higher net asset to issue price characteristics reduces the total cost of underwritten IPOs. Practical implications – The paper provides information to new A-REIT issuers, underwriters and advisors broadly on new issue costs and on factors influencing the IPO issue costs. Originality/value – The study is the first to examine the costs of A-REIT IPO capital raising data in the years prior to and following the recent global financial crisis period.

scholarly journals Shariah-compliant status and IPO oversubscriptions

2018 ◽  
Vol 9 (4) ◽  
pp. 531-548 ◽  
Author(s):  
Ahmad Hakimi Tajuddin ◽  
Nur Adiana Hiau Abdullah ◽  
Kamarun Nisham Taufil Mohd
Keyword(s):  
Initial Public Offerings ◽  
Design Methodology ◽  
Content Type ◽  
Financial Ratio ◽  
Future Studies ◽  
Public Offerings ◽  
Quantile Regression Model ◽  
Early Performance ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to examine the impact of Shariah-compliant status on oversubscription of initial public offerings (IPOs) in Malaysia. It is believed that the Shariah-compliant status serves as a platform that sends a credible signal to investors which could possibly explain the IPO oversubscription anomaly. Design/methodology/approach This study used a multivariate and quantile regression model which involved 252 IPOs listed on Bursa Malaysia from 2005 to 2015. Findings The results show a significant positive relationship between Shariah-compliant status and oversubscription ratio, which suggests that companies with Shariah status could draw the attention of the investors. Strict guidelines and permissible elements of Shariah-compliant are considered agreeable and amicable by the investors. Research limitations/implications Future studies should look into financial ratio benchmark (cash and debt) for determining Shariah-compliant status to enhance the understanding of oversubscription of IPOs in Malaysia. Practical implications This study offers practical understanding to the issuers and underwriters on the factors that should be considered in assuring a good early performance of their issuance. Therefore, it will benefit the issuers and underwriters in managing and planning the IPO process carefully. Social implications The results of this study provide a new insight for investors regarding important information found in the prospectus when making the decisions to subscribe to IPOs. Originality/value This paper is one of the first to provide an empirical evidence of the impact of Shariah-compliant status on oversubscription in the IPO market.

Ethical consumers' brand avoidance

2014 ◽  
Vol 23 (2) ◽  
pp. 114-120 ◽  
Author(s):  
Anne Rindell ◽  
Tore Strandvik ◽  
Kristoffer Wilén
Keyword(s):  
Design Methodology ◽  
Well Being ◽  
Two Dimensions ◽  
Qualitative Approach ◽  
Specific Group ◽  
Content Type ◽  
Ethical Concerns ◽  
Ethical Consumers ◽  
Consumer Values ◽  
Practical Implications

Purpose – The purpose of this paper is to explore ethical consumers' brand avoidance. The study contributes to brand-avoidance research by exploring what role consumers' ethical concerns play in their brand avoidance. Design/methodology/approach – A qualitative approach is adopted by interviewing 15 active members of organizations that represent ethical concerns for the well-being of animals, the environment and humans. Findings – The study indicates that consumers with a strong value-based perspective on consumption (such as ethical consumers) may reject brands in two different but interrelated ways. In essence, the study reveals characteristics of brand avoidance that have not been discussed in earlier research, in terms of two dimensions: persistency (persistent vs temporary) and explicitness (explicit vs latent). Practical implications – The study shows the importance of considering the phenomenon of brand avoidance, as it may reveal fundamental challenges in the market. These challenges may relate to consumer values that have not been regarded as important or that have been thought of as relating only to a specific group of consumers. Originality/value – The ethical consumers' views represent new insights into understanding brand avoidance.

Structuring and financing private equity and venture capital transactions in Luxembourg

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Bertrand Géradin
Keyword(s):  
Venture Capital ◽  
Design Methodology ◽  
Private Equity ◽  
Corporate Law ◽  
Efficient Manner ◽  
Equity Investment ◽  
Content Type ◽  
Key Issues ◽  
Practical Implications ◽  
Optimum Balance

Purpose Luxembourg is the jurisdiction of choice for many private equity and venture capital investors/funds. Though the optimum balance of financing instruments in relation to any structure varies according to its particular circumstances, one factor that all Luxembourg domiciled FDI structures have in common is the requirement for an appropriate level of equity investment. This article intends to summarize some of the topics frequently encountered in relation to equity structuring choices. Design/methodology/approach Author details the different steps and choices available to investors and funds. The article offers answers to questions to provide a broad, yet detailed, overview of the process and journey; from selecting the vehicle right through to distributing to investors, governance, and compliance. Findings To avoid an expensive mistake, it is paramount that the private equity or venture capital investors and management team receive detailed advice to ensure: (i) the deal is structured in the most tax efficient manner possible and the commercial deal is suitable for all parties, and (ii) the deal is structured in a manner which is effective under Luxembourg law, for both tax and legal purposes. Practical implications It is important that non-Luxembourg lawyers are able to identify key issues when negotiating the terms of the investment documents, in particular, the articles of association and shareholders' agreement. Originality/value Practical guidance from Luxembourg lawyer specializing in corporate law, mergers and acquisitions, venture capital and private equity transactions.

IPO valuation using the price-multiple methods: evidence from Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chui Zi Ong ◽  
Rasidah Mohd-Rashid ◽  
Kamarun Nisham Taufil-Mohd
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
Least Square ◽  
Multiple Methods ◽  
Cross Sectional ◽  
Ols Regression ◽  
Content Type ◽  
Public Offerings ◽  
Ordinary Least Square ◽  
Valuation Method

Purpose This study aims to investigate the valuation accuracy of Malaysian initial public offerings (IPOs) by using price-multiple methods. Design/methodology/approach Cross-sectional data including 467 IPOs listed on the Malaysian stock exchange were used for the period of 2000–2017. This study used univariate ordinary least square (OLS) regression to analyse the relationship between IPOs’ price-multiples and comparable firms’ price-multiples. The test of valuation accuracy was conducted via computing valuation errors by segregating the sample into two groups: fixed-price IPOs and book-built IPOs. Furthermore, multiple OLS regression was used to examine the influence of IPO valuation on underpricing. Findings The findings of the results suggested that IPOs price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) multiples were positively related to the median P/E, P/B and P/S multiples of five comparable firms matched by industry and revenues. The P/S multiple was shown to be the most significant valuation method, specifically in book-built IPOs. The findings indicated that those firms that had a lower valuation in comparison to the comparable firms were inclined to underprice their IPOs to allure investors to subscribe IPOs. In addition, book-built IPOs that had fair valuations were inclined to generate higher initial returns for investors. Practical implications The findings of this study observed implications for underwriters in avoiding the mis-valuation issue by considering the book-building mechanism. Originality/value This study attempted to explore the suitability of the valuation method to value IPOs in Malaysia.

The control-ownership wedge and the survival of French IPOs

2018 ◽  
Vol 19 (2) ◽  
pp. 271-294 ◽  
Author(s):  
Imen Derouiche ◽  
Syrine Sassi ◽  
Narjess Toumi
Keyword(s):  
Survival Time ◽  
Initial Public Offerings ◽  
Failure Time ◽  
Vote Rule ◽  
Agency Conflicts ◽  
Content Type ◽  
Controlling Shareholders ◽  
Public Offerings ◽  
The One

Purpose The purpose of this paper is to investigate the effect of the control-ownership wedge of controlling shareholders (excess control) on the survival of French initial public offerings (IPOs). Design/methodology/approach This paper studies a large sample of 434 French IPOs. The empirical analysis uses the Cox proportional hazard and accelerated-failure-time models. Data are manually gathered from IPO prospectuses. Findings The findings support a positive relation between the control-ownership wedge and IPO survival time, indicating that survival is more likely in firms with high excess control levels. This result is consistent with the view that controlling shareholders with a large control-ownership wedge have incentives to preserve their private benefits of control by increasing firm survival chances. The findings also show that older IPOs are more likely to survive, while riskier and underpriced IPOs are more likely to delist. Practical implications The results provide a better understanding of the role of excess control in IPO survival. They also enrich the debate on the efficiency of the one-share-one-vote rule. Originality/value The research provides new insights into the role of agency conflicts in IPO survivability. In particular, it explores the effect of dominant shareholders with a control-ownership wedge on survival time.

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