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.

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.

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.

Impact of IPO grading on earnings management

2015 ◽  
Vol 13 (2) ◽  
pp. 142-158 ◽  
Author(s):  
Yogesh Maheshwari ◽  
Khushbu Agrawal
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Design Methodology ◽  
Discretionary Accruals ◽  
Alternative Measure ◽  
Cross Sectional ◽  
Content Type ◽  
Public Offering ◽  
The Impact ◽  
First Time

Purpose – This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates whether earnings management significantly differs in the pre-IPO grading regime and post-IPO grading regime. Further, it examines whether earnings management significantly differs between high-graded and low-graded IPOs. Design/methodology/approach – The cross-sectional modified Jones model is used to obtain the discretionary accruals, a proxy for earnings management. The impact of IPO grading on earnings management is assessed using multiple regression analysis. Findings – Earnings management is significantly lower in graded IPOs as compared to the ones that are not graded. Further, among the graded IPOs, the high-graded IPOs exhibit lower earnings management as compared to the low-graded IPOs. The findings are robust to the use of an alternative measure for discretionary accruals. Originality/value – IPO grading in India is a unique certification mechanism, introduced for the first time in any market. This paper establishes the efficacy of this mandatory certification mechanism in reducing earnings management. The findings could be valuable to issuer companies, investors and market regulators.

scholarly journals The effect of disclosure regulation on the bias and accuracy of management earnings forecasts in Malaysian IPO prospectuses

2017 ◽  
Vol 15 (1) ◽  
pp. 59-77 ◽  
Author(s):  
Mohammed Abdullah Ammer ◽  
Nurwati A. Ahmad-Zaluki
Keyword(s):  
Initial Public Offering ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Multivariate Statistical ◽  
Disclosure Regulation ◽  
Content Type ◽  
Study Results ◽  
The Impact

Purpose This paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of Malaysian initial public offering (IPO). Specifically, the authors investigated the two environments of regulation (mandatory versus voluntary) to draw some conclusions regarding the benefits of regulating disclosure of management earnings forecasts. Design/methodology/approach A sample of 111 Malaysian IPOs listing on the Main Market of Bursa Malaysia from January 1, 2004 to February 29, 2012 was used. The paper uses both univariate and multivariate statistical analyses on this sample of IPOs. Findings The empirical results of these multivariate regressions indicated that disclosure regulation has positive and significant impact on the bias and accuracy of management earnings forecasts disclosed in IPO prospectus. In general, the study results suggest that using disclosure regulation to improve the quality of IPO earnings forecasts can be, to some extent, an effective strategy. Practical implications The findings of this study have important implications for regulators and investors. The findings can provide them some relevant insights on the improvements to the earnings forecasts accuracy and trends of the forecast (optimistic or pessimistic) after the change from mandatory to voluntary disclosure. Thus, the authorities may learn whether this change is an effective policy or whether the regime of mandatory disclosure was better for IPO companies and should be reversed. Originality/value This study is regarded as the first attempt to investigate the impact of reforms in disclosure regulation on the quality of management earnings forecasts of IPO prospectuses in a developing nation such as Malaysia. In spite of this, the paper focuses on a single country, and it contributes significant insights to the debate about the credibility of IPO management earnings forecasts.

Can textual analysis solve the underpricing puzzle? A US REIT study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nino Martin Paulus ◽  
Marina Koelbl ◽  
Wolfgang Schaefers
Keyword(s):  
Initial Public Offering ◽  
Textual Analysis ◽  
Real Estate Investment Trust ◽  
Litigation Risk ◽  
Information Asymmetries ◽  
Qualitative Information ◽  
Ipo Underpricing ◽  
Content Type ◽  
Public Offering ◽  
Practical Implications

PurposeAlthough many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.Design/methodology/approachThis study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.FindingsContrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.Practical implicationsThe results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.Originality/valueThis is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

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.

An empirical investigation into the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of IPO management earnings forecasts

2019 ◽  
Vol 12 (1) ◽  
pp. 56-75
Author(s):  
Mohammed Abdullah Ammer ◽  
Abdulaziz Mohammed Alsahlawi
Keyword(s):  
Initial Public Offering ◽  
Forecast Error ◽  
Univariate Analysis ◽  
Earnings Forecasts ◽  
Ordinary Least Squares ◽  
Advisory Council ◽  
Least Squares Regression ◽  
Management Earnings Forecasts ◽  
Content Type ◽  
The Impact

Purpose Islam stresses on the practice of transparency and sufficient disclosure particularly when it concerns the ethical identity of Islamic institutions. This is to make sure that the activities conducted in business adhere to Shari’ah principles. The purpose of this paper is to examine the impact of Shari’ah-compliant status on the accuracy of initial public offering (IPO) earnings forecasts and to investigate the effect of the existence of Muslim directors on IPO companies’ board of directors on the accuracy of earnings forecasts. Design/methodology/approach This study makes use of absolute forecast error as a proxy for earnings forecast accuracy. As obtained from the list of Shari’ah-compliant securities established by the Shari’ah Advisory Council of the Malaysian Securities Commission, the study sample comprised 190 Shari’ah-compliant and non-compliant IPOs. The collected data were analyzed through univariate analysis and ordinary least squares regression. Findings The initial findings show that during the study period, the earnings forecasts of Malaysian IPOs are accurate to some level, although such level is still unsatisfactory. The findings also showed that Shari’ah-compliant status and Muslim directorship do not positively affect the accuracy of IPO earnings forecasts. Practical implications The findings of the study provide some implications for regulators, financial analysts, investors and users of financial statements, particularly those desirous of investing in Islamic capital market. Originality/value The present study provides a new and far-reaching contribution into the debate about the earnings forecasts disclosure in the context of Islamic ethical perspective. In addition, this study is considered as the first study to extend IPO literature by examining the impact of Shari’ah-compliant status and Muslim directorship on the accuracy of management earnings forecasts disclosed in the IPO prospectus.

Deception by commission or by omission – management forecasts surrounding share repurchases

2020 ◽  
Vol 28 (4) ◽  
pp. 517-544
Author(s):  
Anthony Chen ◽  
Hung-Yuan (Richard) Lu
Keyword(s):  
Earnings Forecasts ◽  
Bad News ◽  
Good News ◽  
Share Repurchases ◽  
Litigation Risk ◽  
Management Forecasts ◽  
Limited Evidence ◽  
Content Type ◽  
Study Results ◽  
The Impact

PurposeIn this study, the authors extend upon Brockman et al. (2008), who provide evidence that managers opportunistically accelerate bad news prior to share repurchases, but provide limited evidence that managers withhold good news until after repurchases. The authors examine management forecasts surrounding share repurchases in periods when companies must disclose detailed repurchase information. The authors argue these disclosures increase managers' legal and reputation risks of accelerating bad news, but have a lesser effect on delaying good news.Design/methodology/approachFirst, the authors examine whether managers alter the information released to the market before buying back shares by comparing managerial forecasts made within 30 days before the beginning of a repurchasing period with those made outside of this window. Second, the authors examine whether managers are more likely to provide good news forecasts, in terms of both magnitude and frequency, after buying back shares. Lastly, the authors examine the impact of CEO stock ownership on managerial forecasting behavior surrounding share buybacks.FindingsConsistent with the authors’ hypotheses and contrary to Brockman et al. (2008), the authors find limited evidence that the likelihood or magnitude of bad news forecasts is greater in the period before share buybacks. Instead, the authors document that the frequency and magnitude of good news forecasts increase in periods following share buybacks and that these associations are positively moderated by managerial equity incentives. The authors also find that the withholding of good news is associated with lower average repurchase prices and greater repurchase volume. The authors further show that, when litigation risk is greater, managers are less likely to accelerate bad news prior to repurchases and more likely to withhold good news until after. Overall, the study results are consistent with managers balancing the benefits of opportunistic repurchase behavior with the costs.Originality/valueThis study contributes to the management forecast and share repurchase literatures by providing evidence consistent with managers opportunistically releasing earnings forecasts in the period after buying back shares. Most importantly, the authors show that after the rule revision, managers refrain from actively disclosing bad news that carry higher legal costs. Instead, they opt for the omission of good news to repurchase stocks at lower prices. The study results reconcile the conflicting evidence of Brockman et al. (2008) and Ge and Lennox (2011).

Shariah-compliance and IPO underpricing: evidence from Pakistan Stock Exchange

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Waqas Mehmood ◽  
Rasidah Mohd-Rashid ◽  
Ahmad Hakimi Tajuddin ◽  
Hassan Mujtaba Nawaz Saleem
Keyword(s):  
Initial Public Offering ◽  
Stock Exchange ◽  
Negative Relationship ◽  
Ipo Underpricing ◽  
Content Type ◽  
Initial Return ◽  
Asset Volatility ◽  
Financial Characteristics ◽  
Public Offering ◽  
The Impact

Purpose This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan. Design/methodology/approach Besides the ordinary least square’s method, this study used quantile least squares as a robust approach and stepwise regression for further analysis to investigate the underpricing phenomenon in Pakistan. Data of 84 IPOs listed on Pakistan Stock Exchange from January 2000 to December 2018 were collected to determine the impact of Shariah-compliant status and Shariah regulation on IPO underpricing. Findings Results of the study show that Shariah-compliant status has a negative relationship but Shariah regulation has a positive relationship with IPO underpricing. Hence, it is contended that Shariah-compliant firms have lower asset volatility and uncertainty than non-Shariah-compliant firms because of less information asymmetry, resulting in lower underpricing. These Shariah-compliant firms provide signals of high-quality IPOs as they must comply with the strict guidelines issued by the Securities Exchange Commission of Pakistan in addition to being considered as amicable by investors. Further, this study suggests that investors are more attracted to Shariah-compliant firms than non-Shariah-compliant ones. Research limitations/implications This study’s offers limited consideration of nonfinancial and financial characteristics that could influence the decision of investors to subscribe to IPOs. Besides, future studies could consider the screening benchmarks; for instance, debt and cash may explain the intensity of IPO initial return in Pakistan. Originality/value The present work empirically investigated the influence of Shariah-compliant status and Shariah regulation on IPO underpricing in Pakistan’s IPO market, which has been scarcely covered in the existing literature.

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