Asymmetric Information in the Market for IPOs

This study utilizes hand-collected ownership data to re-examine the signaling, agency and wealth effect theories in a matched-sample of initial public offerings (IPOs) issued in the U.S. prior to and following the passage of the Sarbanes-Oxley Act of 2002 (SOX). SOX provides some motivation for revisiting these topics because evidence exists that it may have affected the types of firms going public and ultimately the relatively importance of adverse selection and moral hazard, the asymmetric information problems with which these theories are concerned. Results on both the pre- and post-SOX samples are consistent with the signaling theory and evidence of a wealth effect exists in both eras. However, in contrast to results of studies conducted prior to SOX, both the pre- and post-SOX results give little credence to the agency theory, suggesting that SOX has not impacted investors’ concerns regarding moral hazard. Rather, the difference between the pre-SOX results and the results of previous studies suggests that SOX appeared to reduce moral hazard concerns only through its effect on the self-selection of firms going public.

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Role Of Underwriters In Restraining Earnings Management In Initial Public Offerings

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v28i4.7054 ◽

2012 ◽

Vol 28 (4) ◽

pp. 709 ◽

Cited By ~ 6

Author(s):

Hei Wai Lee ◽

Yan Alice Xie ◽

Jian Zhou

Keyword(s):

Earnings Management ◽

Initial Public Offerings ◽

The Internet ◽

Venture Capitalists ◽

Font Size ◽

Going Public ◽

Public Offerings ◽

Investment Bankers ◽

Sarbanes Oxley

We investigate the relationship between underwriter reputation and earnings management of IPO firms over the period of 1991-2005. We find that IPO firms engage in less earnings management if they are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in restraining earnings management of IPO issuers do not change during the Internet Bubble period or after the passage of the Sarbanes-Oxley Act (SOX). The findings support the certification role of underwriters in the IPO process. We also document that firms going public in the post-SOX period engage in less earnings management compared to firms going public in the pre-SOX period. Further findings suggest that the changing objectives of venture capitalists may explain the reduction in the level of earnings management of IPO firms following the passage of SOX.

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Is Window-Dressing around Going Public Beneficial? Evidence from Poland

Journal of Risk and Financial Management ◽

10.3390/jrfm12010018 ◽

2019 ◽

Vol 12 (1) ◽

pp. 18 ◽

Cited By ~ 1

Author(s):

Joanna Lizińska ◽

Leszek Czapiewski

Keyword(s):

Earnings Management ◽

Stock Returns ◽

Initial Public Offerings ◽

Going Public ◽

Financial Reports ◽

Public Offerings ◽

Ipo Performance ◽

Company Value ◽

The Difference

The informativeness of financial reports has been of a great importance to both investors and academics. Earnings are crucial for evaluating future prospects and determining company value, especially around milestone events such as initial public offerings (IPO). If investors are misled by manipulated earnings, they could pay too high a price and suffer losses in the long-term when prices adjust to real value. We provide new evidence on the relationship between earnings management and the long-term performance of IPOs as we test the issue with a methodology that has not been applied so far for issues in Poland. We use a set of proxies of earnings management and test the long-term IPO performance under several factor models (CAPM, and three extensions of the Fama-French model). Aggressive IPOs perform very poorly later and earn severe negative stock returns up to three years after going public. The difference in returns in accrual quantiles is statistically significant in almost half of methodology settings. The results seem to suggest that investors might not be able to discount pre-IPO abnormal accruals and could be overoptimistic. Once the true earnings performance is revealed over time, the market makes downward price corrections.

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An Empirical Analysis for Abnormal Returns from Initial Public Offerings (IPOs): evidence of Iranian oil and chemical industries

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v3i1.3048 ◽

2013 ◽

Vol 3 (1) ◽

pp. 143 ◽

Cited By ~ 1

Author(s):

Mahdi Filsaraei ◽

Alireza Azarberahman ◽

Jalal Azarberahman

Keyword(s):

Initial Public Offerings ◽

Capital Market ◽

Abnormal Return ◽

Stock Exchange ◽

Abnormal Returns ◽

Going Public ◽

Significance Level ◽

Public Offerings ◽

Positive Abnormal Return ◽

Chemical Companies

Purpose: The core purpose of this paper empirically study of the initial public offerings (IPOs) of companies accepted in oil and chemical industries. The paper attempts to answer the question of is there any abnormal return from IPOs in listed companies in Tehran Stock Exchange (TSE).Design/methodology/approach: This research is an applied research, and its design is empirical, which is done by the method of post-event (past information). For the purpose of the study the t-statistic, regression and variance analyses are applied to examine the hypotheses. We use in the analyses a sample of 29 newly accepted Iranian oil and chemical companies listed on TSE for the period of 2001 to 2012. This paper has studied abnormal return and three abnormal phenomena have been considered in capital market. These phenomena consist: (1) underpricing or overpricing of the firm's stock, (2) lower or higher stock return of the firms and (3) Particular period in market for stock transactions volume.Findings: The results support the hypothesis that there is a positive abnormal return to investing in the newly accepted oil and chemical firms for stockholders. It also shown the firm size is the only factor that can affect the stock abnormal return. With considering significance level, investors have to give attention sequentially to other variables such as stock ownership centralization, going public time and stock offering volume.

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Where Have All the IPOs Gone?

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109014000015 ◽

2013 ◽

Vol 48 (6) ◽

pp. 1663-1692 ◽

Cited By ~ 189

Author(s):

Xiaohui Gao ◽

Jay R. Ritter ◽

Zhongyan Zhu

Keyword(s):

United States ◽

Initial Public Offerings ◽

Small Firms ◽

Alternative Explanation ◽

The United States ◽

Economies Of Scope ◽

Analyst Coverage ◽

Public Offerings ◽

Sarbanes Oxley ◽

Independent Firm

AbstractDuring 1980–2000, an average of 310 companies per year went public in the United States. Since 2000, the average has been only 99 initial public offerings (IPOs) per year, with the drop especially precipitous among small firms. Many have blamed the Sarbanes-Oxley Act of 2002 and the 2003 Global Settlement’s effects on analyst coverage for the decline in IPO activity. We find very little support for the conventional wisdom, and we offer an alternative explanation. Our economies of scope hypothesis posits that the advantages of selling out to a larger organization, which can speed a product to market and realize economies of scope, have increased relative to the benefits of operating as an independent firm.

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The underpricing of initial public offerings in a context of asymmetric information: an empirical study in the French context

International Journal of Managerial and Financial Accounting ◽

10.1504/ijmfa.2011.043332 ◽

2011 ◽

Vol 3 (4) ◽

pp. 323 ◽

Cited By ~ 1

Author(s):

Fatma Khemiri ◽

Younes Boujelbene ◽

Dorra Cheikhrouhou

Keyword(s):

Asymmetric Information ◽

Empirical Study ◽

Initial Public Offerings ◽

Public Offerings

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The Berlin Stock Exchange in Imperial Germany: A Market for New Technology?

The American Economic Review ◽

10.1257/aer.20150626 ◽

2016 ◽

Vol 106 (11) ◽

pp. 3558-3576 ◽

Cited By ~ 10

Author(s):

Sibylle Lehmann-Hasemeyer ◽

Jochen Streb

Keyword(s):

Initial Public Offerings ◽

Industrial Revolution ◽

Stock Exchange ◽

New Technology ◽

Going Public ◽

Public Offerings ◽

Imperial Germany ◽

Long Run ◽

Innovative Firms ◽

Surprising Fact

Analyzing 474 cases of firms going public in the German capital between 1892 and 1913, we show that innovative firms could rely on the Berlin stock market as a source of financing. Our data also reveal that initial public offerings (IPO) of innovative firms were characterized by particularly low underpricing, comparatively high first trading prices, and no long-run underperformance. We interpret these empirical results as evidence for the surprising fact that in the period of the Second Industrial Revolution the Berlin stock exchange was already a well-functioning market for new technology. (JEL G14, N23)

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The Venture Capital Certification Role In Initial Public Offerings

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v32i2.9590 ◽

2016 ◽

Vol 32 (2) ◽

pp. 479 ◽

Cited By ~ 1

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.

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

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v9i3.6040 ◽

2011 ◽

Vol 9 (3) ◽

pp. 80 ◽

Cited By ~ 1

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.

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Factors Influencing IPO Decisions. Do Corporate Managers Use Market and Corporate Timing? A Survey

International Journal of Management and Economics ◽

10.2478/ijme-2014-0041 ◽

2014 ◽

Vol 42 (1) ◽

pp. 30-39 ◽

Cited By ~ 5

Author(s):

Adam Szyszka

Keyword(s):

Initial Public Offerings ◽

Stock Exchange ◽

Going Public ◽

Public Offerings ◽

Corporate Managers ◽

Market Mispricing ◽

Corporate Decisions ◽

Factors Influencing ◽

Warsaw Stock Exchange ◽

Do So

Abstract This paper explores the motives for Initial Public Offerings (IPOs); that is, whether market mispricing or the behavioral inclinations of investors and analysts impact corporate decisions about rising equity, with a particular focus on market and corporate timing practices of managers going public. To do so, an anonymous survey was conducted of 166 managers of firms that recently went public at the Warsaw Stock Exchange in Poland (being the second most active IPO market in Europe, after London). The resulting data reveals that managers attempt to time bullish markets and good historical corporate financial results.

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