Impact of Quality Certification on IPO Underpricing: Evidence from India

2017 ◽  
Vol 18 (2) ◽  
pp. 428-444 ◽  
Author(s):  
Sanjay Dhamija ◽  
Ravinder Kumar Arora
Keyword(s):  
Initial Public Offerings ◽  
Credit Rating ◽  
Univariate Analysis ◽  
Excess Return ◽  
Ipo Underpricing ◽  
Public Offerings ◽  
Rating Agencies ◽  
Quality Certification ◽  
The Mean ◽  
The Impact

The study examines the impact of quality certification of initial public offerings (IPOs) arising out of lead manager’s reputation, grading by credit rating agencies, presence of anchor investors and the reputation of auditors on the level of IPO underpricing. The mean initial excess return that measures the level of IPO underpricing is 22 per cent based on a sample of 399 IPOs made by Indian companies during the period from April 2005 to March 2015. Contrary to expectations, nearly 37 per cent of the IPOs do not provide a positive initial excess return. Univariate analysis reveals that except for IPO grading, the other quality certification variables do not make a significant impact on the level of underpricing. Graded issues are more fairly priced compared to non-graded issues. The Securities and Exchange Board of India (SEBI), the capital market regulator, has recently done away with mandatory grading of IPOs. As graded issues have been observed to improve pricing efficiency, SEBI should reconsider its decision and reintroduce compulsory IPO grading. Multivariate analysis, that includes other variables, such as issue size, level of subscription and promoters holding, reveals that the two variables that have a significant influence on initial excess returns from IPOs are the issue size and the level of oversubscription of the IPO.

Stage financing and syndication in the IPO underpricing of venture-backed firms: Venture capital and IPO underpricing

2019 ◽  
Vol 20 (4) ◽  
pp. 289-300 ◽  
Author(s):  
Awounou-N’dri Honorine ◽  
Dubocage Emmanuelle
Keyword(s):  
Venture Capital ◽  
Information Asymmetry ◽  
Initial Public Offerings ◽  
Capital Investment ◽  
Ipo Underpricing ◽  
Data Set ◽  
Public Offerings ◽  
Venture Capital Investment ◽  
Ipo Performance ◽  
The Impact

The article investigates the impact of stage financing and syndication practices on the underpricing level of venture-backed firms (VBFs) undertaking their initial public offerings (IPOs). This empirical study uses a unique hand-collected data set concerning more than 260 VBFs that went public on Euronext Paris and Alternext between 1997 and 2013. Our findings suggest a lower level of underpricing for firms backed by syndicated venture capital investment. Additionally, we find that the syndicate size is negatively associated with the level of underpricing. However, there is no evidence that stage financing has a significant impact. Syndication thus appears to be the only relevant mechanism to improve IPO performance (measured by the underpricing level), as it reduces agency costs and information asymmetry between the different stakeholders in an IPO process.

The Desire to Acquire and IPO Long-Run Underperformance

2012 ◽  
Vol 47 (3) ◽  
pp. 493-510 ◽  
Author(s):  
James C. Brau ◽  
Robert B. Couch ◽  
Ninon K. Sutton
Keyword(s):  
Initial Public Offerings ◽  
Calendar Time ◽  
Cross Sectional ◽  
Going Public ◽  
Public Firms ◽  
Public Offerings ◽  
Long Run ◽  
The Mean ◽  
Time Frames ◽  
The Impact

AbstractWe analyze 3,547 initial public offerings (IPOs) from 1985 through 2003 to determine the impact of acquisition activity on long-run stock performance. The results show that IPOs that acquire within a year of going public significantly underperform for 1- through 5-year holding periods following the 1st year, whereas nonacquiring IPOs do not significantly underperform over these time frames. For example, the mean 3-year style-adjusted abnormal return is – 15.6% for acquirers and 5.9% for nonacquirers. Our cross-sectional and calendar-time results suggest that the acquisition activity of newly public firms plays an important and previously unrecognized role in the long-run underperformance of IPOs.

scholarly journals The effect of underwriter’s market share, spread and management earnings forecasts bias and accuracy on underpricing of Malaysian IPOs

2016 ◽  
Vol 12 (3) ◽  
pp. 351-371 ◽  
Author(s):  
Mohammed Abdullah Ammer ◽  
Nurwati A. Ahmad-Zaluki
Keyword(s):  
Initial Public Offerings ◽  
Market Share ◽  
Univariate Analysis ◽  
Earnings Forecasts ◽  
Ordinary Least Squares ◽  
Management Earnings Forecasts ◽  
Ipo Underpricing ◽  
Policy Makers ◽  
Content Type ◽  
The Impact

Purpose – Underpricing is one of the most important anomalies associated with initial public offerings (IPOs). The purpose of this paper is twofold; first, it examines the impact of underwriter’s market share and spread on the underpricing of IPOs; and second, it investigates the effect of management earnings forecasts bias and accuracy on the underpricing of IPOs. Design/methodology/approach – A sample of 190 Malaysian IPOs listing on the main market of Bursa Malaysia from January 1, 2002 to February 29, 2012 was used and collected data were analyzed through univariate analysis and pooled ordinary least squares regression. Findings – The empirical evidence shows that IPOs underwritten by underwriters as having high market share and charging low underwriting spread experience higher level of underpricing. The paper also finds that IPOs issued more biased earnings forecasts are related with severe underpricing. Finally, this paper reveals that the more accurate the earnings forecasts are, the more minimized will be the asymmetric information and hence, the less will be IPO underpricing. Practical implications – The paper has some implications for policy makers, investors and underwriters. First, this study offers some insights for policy makers who are responsible for Malaysian financial markets current reforms. Further, knowing the importance of the economic outcomes of the earnings forecasts on underpricing for policy makers, they may adopt the findings in their discussion of costs of litigation and potential modifications in the requirements of issuing earnings forecasts. For the investors, findings may improve their understanding of equity valuation and for the underwriters, it would assist them in identifying underwriting cost. Originality/value – This paper is considered the first study to extend IPO literature by investigating the relationships between underwriter’s market share, underwriter’s spread, earnings forecasts bias, earnings forecasts accuracy and IPO underpricing in an emerging country, such as Malaysia.

Initial Public Offerings in the CMU

2018 ◽  
Author(s):  
Merritt B Fox
Keyword(s):  
Information Asymmetry ◽  
Initial Public Offerings ◽  
Capital Markets ◽  
Final Section ◽  
Public Offerings ◽  
Rating Agencies ◽  
Capital Markets Union ◽  
Preceding Discussion ◽  
Directors And Officers

This chapter begins by considering the especially severe information-asymmetry problem that plagues primary offerings of truly new securities. It then examines market-based solutions for these problems, the shortcomings of exclusive reliance on such solutions, and the rationale for having a government-designed affirmative-disclosure regime, whereby an issuer making an offering is required to answer certain questions. It also addresses the question of whether this regime should be imposed on all issuers making such offerings or only those that volunteer to be subjected to it. The remainder of the chapter considers the rationale for mandating the imposition of liability on issuers, issuer directors and officers, underwriters, dealers, and experts such as accountants or rating agencies when there have been material misstatements or material omissions of what was required to be disclosed. The final section briefly applies the preceding discussion to the efforts, as part of the Capital Markets Union, to increase the opportunities for European SMEs raise funds through public offerings.

IPO Underpricing: A Meta-Analysis and Research Synthesis

2003 ◽  
Vol 27 (3) ◽  
pp. 271-295 ◽  
Author(s):  
Catherine M. Daily ◽  
S. Trevis Certo ◽  
Dan R. Dalton ◽  
Rungpen Roengpitya
Keyword(s):  
Initial Public Offerings ◽  
Meta Analysis ◽  
Research Synthesis ◽  
Future Research ◽  
Popular Press ◽  
Ipo Underpricing ◽  
Public Offerings ◽  
Factors Associated ◽  
Significant Relationships ◽  
Dot Com

Initial public offerings (IPOs) have been a prominent focus of academic and popular press attention, especially in recent years. Much of this attention can be attributed to the increase in IPO activity as a function of the “dot com” phenomenon. Of particular interest to both academics and practitioners is IPO underpricing. Review of existing research suggests little consensus regarding those factors associated with underpricing. We provide a meta-analysis of published studies. Our findings reveal a number of significant relationships, many of which are opposite that predicted by signaling theory. Implications of these findings for practice and future research are discussed.

IPO Underpricing across Different Sectors in India from 2010-2020

2021 ◽  
pp. 337-345
Author(s):  
Lakshay Khandelwal ◽  
Aditi Agarwal
Keyword(s):  
Standard Deviation ◽  
Initial Public Offerings ◽  
Weighted Average ◽  
Weighted Mean ◽  
Ipo Underpricing ◽  
Consumer Durables ◽  
Engineering Construction ◽  
Public Offerings ◽  
Short Period ◽  
Indian Stock Market

In this paper, underpricing of Initial Public Offerings across thirteen different sectors in the Indian stock market have been analyzed, during the period 2010–2020 (Data available till 31st October 2020). A sample of 129 companies, having an issue size greater than INR 100 crores, was examined and analyzed through IPO listing gains, weighted mean, standard deviation and coefficient of variation. The study shows that Retail, FMCG and Consumer Durables industry was underpriced the most while Engineering, Construction and Infrastructure industry issues were underpriced the least or overpriced. It was also found that Initial Public Offerings (IPOs) could be a window to make immediate gains in a very short period of time if thorough analysis of the issues and the market conditions is performed. Furthermore, it was observed that the first day return of the companies varies highly and cannot be fairly predicted by the weighted average first day return of the respective sector.

scholarly journals An empirical study of IPO underpricing: Evidence from Chinese stock market

2014 ◽  
Vol 12 (1) ◽  
pp. 139-152 ◽  
Author(s):  
Tianxiang Xu ◽  
Yujie Zhao
Keyword(s):  
Empirical Study ◽  
Information Asymmetry ◽  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Chinese Stock Market ◽  
Short Term ◽  
Ipo Underpricing ◽  
Public Offerings ◽  
Public Offering ◽  
Different Characteristics

Initial public offerings, as one of the most important activities for firms, have raising massive amount of researches. Regarding China, the stock markets are experiencing a massive level of IPO underpricing, which leads to trillions of dollars leaved on the table. This study is conducted for the question why Chinese IPO are so heavily underpriced and the determinants of IPO underpricing, also the possibility of IPO be underpriced in China. We confirm again that Chinese IPOs are heavily underpriced and the average underpricing level is about 110%. Further, Chinese IPO will experience a negative short term return starting from 10 days after listing, and there are significantly different characteristics for state owned IPOs and private IPOs. This study finds that information asymmetry, proportion of state owned share and risk are the mainly determinants of IPO underpricing in China. Additionally, one of the biggest reason that Chinese initial public offering is underpriced so much is because of government participation, since we find that firms with larger proportion of government state owned shares will be more underpriced.

scholarly journals Review of short-run performance of initial public offerings in Australia

2021 ◽  
Vol 18 (2) ◽  
pp. 188-200
Author(s):  
Lutfa Tilat Ferdous ◽  
Niroshani Parahara Withanalage ◽  
Abyan Amirah Qamaruz Zaman
Keyword(s):  
Regression Analysis ◽  
Initial Public Offerings ◽  
Stock Exchange ◽  
Secondary Market ◽  
Publicly Traded ◽  
Ipo Underpricing ◽  
Secondary Markets ◽  
Public Offerings ◽  
Short Run ◽  
Total Market

This study investigates the short-run performance of initial public offerings in Australia. Based on sources from the Morningstar DatAnalysis database, we analyzed 211 Australian publicly traded initial public offerings (IPO) listed on the Australian stock exchange between January 2011 and December 2015 using multiple regression analysis with dummies to represent industry and listing year. According to our analysis, total market return indicates an IPO underpricing phenomenon whereas secondary market shows an overpricing scenario. Moreover, this analysis supports the contention that short-run performance fluctuations were based on the listing year and industry settings. This study contributes to the literature by analysing the short-run performance of both the primary and secondary markets

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