Underpricing Luxury: When a Lower Price Results in Higher Reputation

2021 ◽  
pp. 193896552110428
Author(s):  
Jörn Kleinhans ◽  
Kathryn A. LaTour
Keyword(s):  
Initial Public Offering ◽  
Secondary Market ◽  
Lower Price ◽  
Open Market ◽  
Secondary Markets ◽  
Price Point ◽  
Public Offering ◽  
Luxury Market ◽  
The Impact

Determining the price point is a vexing problem for firms: price too high and there is no market, but price too low and money is left on the table. Complicating matters further, for many goods there is a secondary market where products can be resold following the initial sale by the firm. Here, the open market determines the price point that end consumers pay. Often that price is higher than the price offered by the firm for goods such as premium handbags, wine, high-end watches, and works of art, so the consumer will see the product’s quality or appeal validated by the market, which leads to a reputation gain for the firm. This phenomenon goes beyond physical products and includes a variety of services, such as live concerts, as reflected in their ticket prices in primary and secondary markets. However, the secondary market can also offer a lower price than the firm’s original offering, which hurts the firm’s reputation. Typically, the luxury market equates higher prices with higher status but neglects the impact of the secondary market. Our research considers the case where initially underpricing a good may be in a luxury firm’s long-term interest. Although underpricing has been used in initial public offering (IPO) markets to increase the firm’s reputation, it has been viewed as a problem or discouraged in other market industries. Our hypothesis is that reputation has long-term value for firms and, in industries where a visible secondary (i.e., resale) market exists for products, price increases after product release lead to gains in reputation as higher resale prices signal quality and value.

scholarly journals Research on Underpricing Concept of IPO (Initial Public Offering) in Indian Stock Market

2019 ◽  
Vol 8 (11S) ◽  
pp. 179-183
Keyword(s):  
Initial Public Offering ◽  
Comparative Method ◽  
Open Market ◽  
Ipo Underpricing ◽  
Private Company ◽  
Enterprise Information ◽  
Corporate Network ◽  
Public Offering ◽  
Indian Stock Market ◽  
The Impact

There are several ways of raising funds from primary market but, IPOs are the widely adopted tool by the companies to raise funds from open market for the initial sale of stock by private company. India being a developing nation and flourishing corporate network is focused on IPO. The motivation behind this examination is to understand the case of underpricing exists to think about whether or not an Indian IPO and the impact of the administrative system on IPO underpricing. In this examination enterprise information is broken down by descriptive and comparative method. Indian market has more underpricing than overpricing.

Pengaruh Reputasi Underwriter, Umur Perusahaan, dan Persentase Penawaran Saham 53 kepada Publik terhadap Underpricing

2016 ◽  
Vol 8 (1) ◽  
pp. 53-74
Author(s):  
Maria Jeanne ◽  
Chermian Eforis
Keyword(s):  
Initial Public Offering ◽  
Stock Price ◽  
Stock Exchange ◽  
Secondary Data ◽  
Secondary Market ◽  
Financial Statement ◽  
Data Set ◽  
Multiple Regression Method ◽  
Underwriter Reputation ◽  
Public Offering

The objective of this research is to obtain empirical evidence about the effect of underwriter reputation, company age, and the percentage of share’s offering to public toward underpricing. Underpricing is a phenomenon in which the current stock price initial public offering (IPO) was lower than the closing price of shares in the secondary market during the first day. Sample in this research was selected by using purposive sampling method and the secondary data used in this research was analyzed by using multiple regression method. The samples in this research were 72 companies conducting initial public offering (IPO) at the Indonesian Stock Exchange in the period January 2010 - December 2014; perform initial offering of shares; suffered underpricing; has a complete data set forth in the company's prospectus, IDX monthly statistics, financial statement and stock price site (e-bursa); and use Rupiah currency. Results of this research were (1) underwriter reputation significantly effect on underpricing; (2) company age do not effect on underpricing; and (3) the percentage of share’s offering to public do not effect on undepricing. Keywords: company age, the percentage of share’s offering to public, underpricing, underwriter reputation.

APAKAH FAKTOR EKSTERNAL MEMPREDIKSI UNDERPRICING LEBIH BAIK DIBANDINGKAN FAKTOR INTERNAL? STUDI INITIAL PUBLIK OFFERING DI BEI TAHUN 2009-2017

2020 ◽  
Vol 7 (1) ◽  
Author(s):  
Saefudin Saefudin ◽  
Tri Gunarsih
Keyword(s):  
Interest Rates ◽  
Initial Public Offering ◽  
Stock Exchange ◽  
Sample Selection ◽  
Secondary Data ◽  
Secondary Market ◽  
Company Size ◽  
Negative Effect ◽  
Underwriter Reputation ◽  
Public Offering

Underpricing is a phenomenon that still occurs in the Indonesian capital market, where the offering price of shares in the primary market is lower than the opening price or closing price on the first day on the secondary market. This study aims to examine the effect of Return On Assets (ROA), Debt to Equity Ratio (DER), company size, underwriter reputation, age, and interest rates on the underpricing of shares in companies’s Initial Public Offering (IPO) listing on the Indonesia Stock Exchange (BEI) in 2009 to 2017. The population in this study are companies that conduct IPOs on the BEI period 2009 to 2017. The sample selection in this study uses a purposive sampling method, based on certain criteria. The sample in this study were 183 underpricing companies from 205 companies conducting IPO in the period 2009 to 2017. The data used in this study used secondary data. The multiple regression analysis was implemented in this study. The results showed that DER, company size, and underwriter reputation did not significantly influence underpricing. While ROA, age and interest rates have a significant negative effect on underpricing. In this study, investors consider ROA, age, interest rates compared to DER, company size, and the reputation of the underwriter to invest in companies that make an IPO.Keywords: Underpricing, Initial Public Offering, and Indonesian Stock Exchange.

scholarly journals Corporate governance and IPO underpricing: evidence from the italian market

2021 ◽  
Author(s):  
Emanuele Teti ◽  
Ilaria Montefusco
Keyword(s):  
Corporate Governance ◽  
Initial Public Offering ◽  
Boards Of Directors ◽  
Stock Option ◽  
Board Members ◽  
Ipo Underpricing ◽  
Italian Market ◽  
Public Offering ◽  
The Impact ◽  
Positive Effect

AbstractThis paper aims to analyse the impact of firms’ corporate governance characteristics on the degree of first-day returns (i.e., underpricing) in the Italian initial public offering (IPO) market. In particular, this work investigates the impacts of the characteristics of boards of directors (BoDs) and ownership structure on the underpricing of newly offered shares. By studying a sample of 128 Italian IPOs between 2000 and 2016, it is concluded that corporate governance characteristics affect the degree of first-day returns following a company’s IPO. More specifically, the size of the BoD negatively affects underpricing, while the ownership of institutional investors and board members has a positive effect on the degree of underpricing. Conversely, no significant evidence is found with regard to board independence, the number of female directors in the boardroom, the implementation of stock option plans and ownership concentration.

Friends in high places : two essays on the importance of corporate political connections

2015 ◽  
Author(s):  
◽  
Reza Houston
Keyword(s):  
Initial Public Offering ◽  
Political Connections ◽  
Target Firm ◽  
University Of Missouri ◽  
Accounting Performance ◽  
The Public ◽  
Public Offering ◽  
The University ◽  
The Impact ◽  
The Relationship

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] This study is an examination of the relationship between political connections and the undertaking of major firm events. In our first essay, presented in Chapter 3, we examine the impact politically connected appointments have on firm acquisition behavior. Using proxy statements, we create a unique database of politically connected bidders and merger targets. We find that bidders who hire connected individuals to the board or management team are more likely to avoid merger litigation. Connected bidders make more bids after the appointment. These firms also bid on larger targets. We determine there is a positive relation between the control premium and the relative of the target's connections. Connected acquirers have superior post-merger accounting performance, particularly when they acquire a connected target firm. In the second essay, presented in Chapter 4, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Politically connected IPO firms also have superior post-IPO returns relative to non-connected IPO firms.

scholarly journals STUDI PRAKTIK EARNINGS MANAGEMENTPADA PERUSAHAAN YANG MELAKUKAN INITIAL PUBLIC OFFERINGDI BURSA EFEK JAKARTA

2016 ◽  
Vol 5 (3) ◽  
pp. 313
Author(s):  
Akhmad Riduwan
Keyword(s):  
Initial Public Offering ◽  
Market Price ◽  
Open Market ◽  
Price Information ◽  
Public Offering

Saat melakukan penawaran saham perdana (Initial Public Offering atau disingkat IPO) adalah saat yang penting bagi perusahaan. Harga perdana saham mempunyai dampak yang signifikan terhadap perusahaan yang mengeluarkan sekuritas (issuers). Kas yang diperoleh dari pasar perdana ini, oleh issuersdapat dinikmati secara langsung. Hasil penjualan saham masuk ke perusahaan sebagai dana segar yang bisa tak terbatas jum-lahnya dibandingkan surat hutang, tergantung pada prospek perusahaan di masa men-datang di mata investor. Seringkali harga perdana ditetapkan berdasarkan informasi non harga (non-price information). Metode yang paling lazim digunakan underwriters dan investor untuk menilai saham perdana adalah dengan menggunakan pendekatan perusa-haan-perusahaan yang dapat diperbandingkan (comparable-firms approach). Pendekat-an ini menggunakan price-earning ratioperusahaan-perusahaan yang dapat diperban-dingkan sebagai penentu awal (yang dianggap mewakili open market price) untuk kemu-dian dikalikan dengan earnings perusahaan yang akan menawarkan saham perdananya. Oleh karenanya, informasi earnings yang disampaikan sebelum perusahaan menawarkan saham perdananya memegang peranan yang sangat penting untuk mendongkrak harga saham perdana.Alasan di atas cukup kuat untuk sampai pada dugaan bahwa issuers mungkin saja mela-kukan earnings managementdengan meninggikan laba dan melaporkannya pada infor-masi yang dipublikasikan sebelum penawaran saham perdananya untuk mendapatkan insentif dari pasar modal. Kajian tentang hal tersebut memberikan bukti bahwa manajer mengatur earnings pada saat mendekati penawaran perdana (penelitian oleh Friedlan 1994, Shivakumar 2000).Kebanyakan investor yang menggunakan informasi pada prospektus sebagai satu-satunya sumber informasi yang mudah dan murah, akan sangat mudah terpengaruh oleh pilihan-pilihan kebijakan akuntansi issuers dalam rangka earnings management.Penelitian ini mengkaji kemungkinan perusahaan-perusahaan yang melakukan penawar-an saham perdananya di Bursa Efek Jakarta mengatur earnings sedemikian rupa dan meng-informasikannya melalui prospektus dengan tujuan mencapai harga perdana yang setinggi-tingginya. Setelah itu, perusahaan mengembalikan earnings ke tingkat semula.

Groupon: let's make a deal?

2015 ◽  
Vol 11 (1) ◽  
pp. 26-38
Author(s):  
Susan White
Keyword(s):  
Social Media ◽  
Initial Public Offering ◽  
Content Type ◽  
Media Companies ◽  
Secondary Sources ◽  
Long Run ◽  
Public Offering ◽  
Media Firms ◽  
Term Performance

Synopsis Groupon, an online coupon company, was one of many companies that considered an initial public offering (IPO) during what might be a second technology/internet/social media IPO boom in 2011. Some companies chose to postpone their IPOs, while others took advantage of the media attention focussed on technology companies, and in particular, social media firms. Should investors hop on the tech IPO bandwagon, or hold off to better evaluate the long-term prospects of tech companies, and in particular social media companies? Would the valuation of Groupon justify an investment in IPO shares? Research methodology The case was researched from secondary sources, using Groupon's IPO filing information, news articles about the IPO and industry research sources, such as IBIS World. Relevant courses and levels This case is appropriate for an advanced undergraduate or MBA corporate finance or investment elective. Most introductory finance classes do not have the time to cover later chapters in a finance textbook, where information about IPOs is generally found. It could also be used at the end of a core finance course, where the instructor wanted to introduce this topic through a case study of a hard-to-value internet-based company to illustrate the difficulties in setting IPO prices. The case could also be used in an equity analysis class, an entrepreneurial finance class or an investment class, to spur discussion about valuing an internet company and choosing appropriate investments for pension fund investing. This case could also be used in a strategy class, focussing on the five forces question, and eliminating the valuation question. Theoretical basis There is a great deal of literature about IPOs and their long-term performance. An excellent source is Jay R. Ritter's research, http://bear.warrington.ufl.edu/ritter, which has a longer time period and more data than could be contained in this case. IPO puzzles include persistent undervaluing of IPOs; in other words, the offer price is lower than, and sometimes substantially lower than, the first day close price. A second issue is the generally poorer long-run performance of companies after their IPO when compared to similar firms that did not do an IPO.

scholarly journals Initial Public Offering Allocations, Price Support, and Secondary Investors

2016 ◽  
Vol 51 (5) ◽  
pp. 1663-1688 ◽  
Author(s):  
Sturla Lyngnes Fjesme
Keyword(s):  
Initial Public Offering ◽  
Stock Exchange ◽  
Secondary Market ◽  
Theoretical Interest ◽  
Price Support ◽  
Media Attention ◽  
The Past ◽  
Price Manipulation ◽  
Public Offering

Tying initial public offering (IPO) allocations to after-listing purchases of other IPO shares as a form of price support has generated much theoretical interest and media attention. Price support is price manipulation and can reduce secondary investor return. In the past, obtaining data to investigate price support has proven to be difficult. I document that price support is harming secondary investor return using new data from the Oslo Stock Exchange. I also show that investors who engage in price support are allocated more future oversubscribed allocations, whereas harmed secondary investors significantly reduce their future participation in the secondary market.

scholarly journals Does Leverage Constrain Real and AEM Around IPO Corporate Event? Evidence from the Emerging Market

2019 ◽  
Vol 20 (2) ◽  
pp. 354-367
Author(s):  
Sani Hussaini Kalgo ◽  
Bany-Ariffin A.N. ◽  
Hairul Suhaimi Bin Nahar ◽  
Bolaji Tunde Matemilola
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Emerging Market ◽  
Order Theory ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Pecking Order Theory ◽  
Public Offering ◽  
The Impact

The article investigates whether Malaysian initial public offering (IPO) firms engage in real and accrual earnings management (AEM) and examines the impact of leverage on the earnings management’s discretionary behaviour of the firms for the period of 2003–2013. The Dechow, Sloan, and Sweeney (1995, The Accounting Review, 70[2], 193–225) cross-sectional modified Jones model was used to estimate discretionary accruals, while Roychowdhury’s (2006, Journal of Accounting and Economics, 42[3]), 335–370) cross-sectional models were used to investigate abnormal real activity discretionary behaviour. The results indicate Malaysian IPO firms engage in real and accrual discretionary behaviour. The graphical presentations of the earnings’ management proxies indicate higher real and AEM for high-leverage firms. Similarly, the multivariate analysis indicates a positive relationship between leverage and earnings management, which is in tandem with the agency cost of free cash flow theory and debt hypothesis. It is also consistent with the pecking-order theory of capital structure. This study suggests that regulatory agencies and standard setters should continue to improve quality of accounting reports in order to protect investors’ invested capital.

scholarly journals The Impact of R&D Alliance on the Survival of Newly Listed High Tech Firms

2016 ◽  
Vol 6 (2) ◽  
pp. 197
Author(s):  
Vicar S. Valencia
Keyword(s):  
United States ◽  
Longitudinal Data ◽  
Financial Performance ◽  
Initial Public Offering ◽  
The United States ◽  
High Tech ◽  
Estimation Strategy ◽  
Public Offering ◽  
The Impact

This paper investigates the extent to which R&D alliance participation affects the survival performance of newly listed high tech firms. The estimation strategy identifies the impact through changes on a firm’s alliance status. Using longitudinal data on high tech firms that had an initial public offering in the United States, results suggest that R&D collaborating firms experience greater survival, relative to non-R&D collaborating firms. In particular, participation in an R&D alliance is associated with an attenuation of delistment due to poor financial performance.

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