scholarly journals Do Discounts Enhance or Degrade IPOs Valuation Performance?

2021 ◽  
Vol 5 (2) ◽  
pp. 34-41
Author(s):  
Douaa Tizniti ◽  
Mohammed Rachid Aasri
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
Market Price ◽  
Relevant Information ◽  
Fair Value ◽  
Fundamental Analysis ◽  
Public Offerings ◽  
Final Offer ◽  
Before And After ◽  
The Impact

In the present study, we investigate the impact of discounts on the valuation performance of initial public offerings. Review of existing literature reveals that such valuation performance lacks examination in terms of discounts as most studies focus on valuation methods. Accordingly, we examine the valuation performance of initial public offerings before and after applying discounts. Whereby, underwriters apply a deliberate discount to fair value estimate before setting the final offer price. We assess the valuation performance of initial public offerings through bias and accuracy errors as well as explainability. When valuation errors are low, the valuation performance is deemed superior. Our sample consists of 39 initial public offerings conducted on the Moroccan stock exchange between 2004 and 2018. We use publicly available prospectus to collect necessary data. Our results reveal that discounts applied to fair value estimate when setting the final offer price reduce valuation errors. Consequently, discounts enhance the valuation performance of initial public offerings. In fact, both optimistic and pessimistic final offer price are closer to market price in comparison with optimistic and pessimistic fair value estimate. We conclude that if valuations conducted by underwriters are objective, discounts serve as a qualitative valuation to supplement the quantitative one. This qualitative valuation incorporates relevant information about market circumstances with regard to initial public offerings. This indicates the superior fundamental analysis underwriters are capable of performing. However, if valuations conducted by underwriters are subjective, then underwriters deliberately overestimates fair value estimate to justify applying discounts when setting the final offer price. Nonetheless, our study reveals that discounts are more than proportional to valuation optimism. Consequently, while discounts absorb this valuation optimism, they also set a valuation pessimism. In other words, discounts avoid overpricing initial public offerings, yet they result in underpricing them. Interestingly, we discover that although optimistic fair value estimate and pessimistic final offer price have approximate valuation errors, underwriters are more comfortable underpricing initial public offerings than overpricing them.

The Underpricing of Initial Public Offerings at the Berlin Stock Exchange, 1870–96

2011 ◽  
Vol 12 (1) ◽  
pp. 11-32 ◽  
Author(s):  
Carsten Burhop
Keyword(s):  
Asymmetric Information ◽  
Initial Public Offerings ◽  
Cash Flow ◽  
Capital Market ◽  
Stock Exchange ◽  
Market Price ◽  
Relevant Information ◽  
Litigation Risk ◽  
Public Offerings

Abstract In this article, we evaluate underpricing of initial public offerings at the Berlin Stock Exchange between 1870 and 1896. In contrast to modern data, first-day returns were extraordinary low and averaged less than 5%, even during the speculative period of the early 1870s. Moreover, standard underpricing theories based on asymmetric information, signalling mechanisms or litigation risk cannot explain underpricing. In contrast to modern markets, underpricing was higher during hot issue markets. Finally, we show that cash-flow relevant information contained in the corporate charter was readily factored in the first market price. Thus, the historical capital market differed from today’s market, but seems to have been efficient.

Do IPOs Affect Market Price? Evidence from China

2018 ◽  
Vol 53 (3) ◽  
pp. 1391-1416 ◽  
Author(s):  
Song Shi ◽  
Qian Sun ◽  
Xin Zhang
Keyword(s):  
Initial Public Offerings ◽  
Market Price ◽  
Good News ◽  
Public Offerings ◽  
Regulatory Commission ◽  
The Impact ◽  
Robust Evidence

We examine whether sizable initial public offerings (IPOs) affect the whole market. Using a Chinese IPO sample, we find robust evidence that sizable IPOs depress the market price on not only the listing day but also the offering (subscription) day. The impact on the market is negatively correlated with IPO size on the listing day. However, this impact is largely transitory. The China Securities Regulatory Commission (CSRC) often places a moratorium on IPOs to support the market, which seems ineffective as the negative IPO effect is transitory and moratoriums are not perceived as good news.

Do IPO Certification Mechanisms Work? Empirical Evidence from India

2021 ◽  
pp. 097215092110197
Author(s):  
B. S. Mahalakshmi ◽  
Juhi Gupta ◽  
Smita Kashiramka ◽  
P. K. Jain
Keyword(s):  
Regression Analysis ◽  
Information Asymmetry ◽  
Initial Public Offerings ◽  
Multivariate Regression ◽  
Multivariate Regression Analysis ◽  
Fair Value ◽  
Individual Investors ◽  
Public Offerings ◽  
Two Factors ◽  
The Impact

In initial public offerings (IPOs), underpricing refers to pricing the issue at a price lower than its fair value which results in the listing price being much higher than the issue price. This higher information asymmetry results in more underpricing. To reduce such asymmetry, the Securities and Exchange Board of India (SEBI) introduced IPO grading and anchor investor participation in India. This article aims to assess the impact of these two factors on the underpricing of Indian IPOs over 2007–2017. This study uses multivariate regression analysis to compare the impact of graded versus ungraded IPOs and of anchor-backed versus non-anchor backed IPOs on underpricing; it finds that IPO grading and anchor investment do not have a significant overall impact on underpricing. These results justify the scrapping of mandatory IPO grading. Although insignificant, IPO grading has a greater influence on underpricing than anchor investor participation. Furthermore, the current study also analyses the subscription patterns of qualified institutional buyers (QIBs), non-institutional investors (NIIs) and retail individual investors (RIIs) and their influence on one another. Accordingly, it reveals that QIB subscription influences both NII and RII subscriptions.

scholarly journals IPO Pricing and Dealers’ Interaction: A Stochastic Frontier Approach

2020 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Marco Cucculelli ◽  
Manuela Geranio ◽  
Camilla Mazzoli ◽  
Sabrina Severini
Keyword(s):  
Initial Public Offerings ◽  
Institutional Investors ◽  
Stochastic Frontier ◽  
Fair Value ◽  
Investment Banks ◽  
Stochastic Frontier Approach ◽  
Market Pricing ◽  
Public Offerings ◽  
Ipo Pricing ◽  
The Impact

This study investigates the impact of ongoing relationships between underwriters and institutional investors on Initial Public Offerings (IPO) pricing. Differently from previous studies that are focused on allocations of underpriced shares we propose a model of primary market pricing in which the incomplete adjustment of the offer price to its maximum achievable level depends on the intensity of interactions that occurred between players in the years before the IPO. Using a stochastic frontier approach on a sample of 1 677 US IPOs between 2000 and 2016 the paper shows that the more investment banks and investors regularly work together the more the IPO offer price is set closer to the fair value of the issuing firm. This analysis helps to disentangle the ambiguous effects of underwriters’ discretion on IPO primary market pricing when bookbuilding is used. We then support the idea that banks can maximize value to issuers by fostering a regular clientele of investors.

scholarly journals Coercion, copy-cats, and colleagues: staffing the board of the IPO company

2009 ◽  
Vol 7 (1) ◽  
pp. 108-119 ◽  
Author(s):  
Anna Thorsell ◽  
Barbara Cornelius
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
Strong Support ◽  
Public Offerings ◽  
Educational Backgrounds ◽  
High Level ◽  
Industry Sectors ◽  
The Impact ◽  
Mimetic Isomorphism ◽  
Selection Of

122 initial public offerings (IPOs) occurring on the Stockholm Stock Exchange from January 1996 until September 2006 have been examined to assess the impact of institutional isomorphism on the selection of directors for boards facing the transition to listed companies. A high level of union representation as well as the restructuring of boards prior to an IPO and in anticipation of legal changes gives strong support for the influence of coercive isomorphism on IPO firms. Companies within industry sectors make similar choices with regard to their directors, their choices being dissimilar from their associates in other industry groupings. This supports the concepts underlying mimetic isomorphism. Finally normative isomorphism is largely supported by the reliance of corporations on a closed group of directors with similar educational backgrounds. All in all, societal and regulatory pressures, as modelled under institutional theory, are influencing the processes of corporate governance during an IPO

Do sponsors and democratic government influence the flipping activity of Pakistan IPO? Evidence from developing market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ayesha Anwar ◽  
Rasidah Mohd-Rashid ◽  
Norliza Che Yahya ◽  
Chui Zi Ong
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
Accurate Information ◽  
Cross Sectional ◽  
Content Type ◽  
Democratic Government ◽  
Public Offerings ◽  
Trading Volumes ◽  
The Impact ◽  
The Relationship

Purpose This study aims to examine the impact of sponsors and democratic government on the flipping activity of initial public offerings (IPOs). Design/methodology/approach Based on the sample of 95 IPOs listed on the Pakistan Stock Exchange between January 2000 and December 2019, this study used multiple cross-sectional regression to examine the relationship between sponsors and democratic government on flipping activity. Findings The findings indicate a significant negative association between sponsors and the flipping activity of IPOs. Sponsor(s) signal quality by trying to share accurate information about company values. As a result, the confidence of rational investors in the company’s future prospectus increases and they hold their shares for future gains, which reduces the flipping activity. Also, democratic government, along with sponsors' participation, provides investors with liquidity immediately after listing. Practical limitations/implications The findings of this study have implications for investors as they may assist them make informed decisions about whether or not to invest in an IPO with high sponsor(s) ownership. In addition, issuers should consider the disclosure of sponsor information(s) as such information may directly affect the first day’s trading volumes. Originality/value To the best of the authors’ knowledge, this is the first research study that explores the correlation between sponsors and democratic government and flipping activity of IPO. This study is important for investors and issuers.

Moderating effect of investor demand: privatized IPOs and flipping activity in the Pakistan IPO market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ayesha Anwar ◽  
Rasidah Mohd-Rashid
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
High Volume ◽  
Least Square ◽  
Valuable Insight ◽  
Trading Behavior ◽  
Content Type ◽  
Public Offerings ◽  
Price Performance ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of privatized initial public offerings (IPOs) on flipping activity in the Pakistan IPO market. Design/methodology/approach This study sampled 95 IPOs listed on the Pakistan stock exchange over the period of 2000 to 2019. The ordinary least square technique and quantile regression were used to examine the impact of privatized IPO on flipping activity. Findings The present study finds that privatization affects flipping activity and creates a quality signal in Pakistan’s IPO market. The findings of this study also show that privatized IPOs were subjected to high levels of flipping activity compared to non-privatized IPOs. Additionally, investors’ demand has been found to moderate the relationship between privatized IPOs and flipping activity in Pakistan’s IPO market. Research limitations/implications Based on the fact that the sample consists of a combination of privatized and non-privatized IPOs, the results provide valuable insight into factors that may lead to unusual trading behavior/flipping during the first day of listing. Originality/value Despite several studies on events (e.g. short- and long-term price performance) around IPO, there is little evidence on how privatized IPOs affect flipping activity, which is a high volume of trading immediately after listing.

The Rise and Fall of the German IPO Market, 1870-1938

2018 ◽  
Vol 59 (1) ◽  
pp. 9-37
Author(s):  
Carsten Burhop ◽  
David Chambers ◽  
Brian Cheffins
Keyword(s):  
World War Ii ◽  
Stock Market ◽  
Initial Public Offerings ◽  
Stock Exchange ◽  
World War ◽  
Stock Market Development ◽  
Public Offerings ◽  
German Stock ◽  
The Impact ◽  
German Stock Market

Abstract This study of over 1,000 initial public offerings (IPOs) on the Berlin stock exchange from German unification to the eve of World War II draws attention to the importance of regulation and deepens our understanding of German stock market development. An increasingly exacting regulatory environment from the early 1880s to 1914 made a vital contribution to the higher likelihood of firms going public surviving. In the inhospitable regulatory setting of the 1930s, IPO activity drew to a halt and the development in the German stock market over the preceding decades reversed. As a complement to our analysis of the impact of regulation, we document the increased involvement of leading universal banks (D-banks) in the IPO market over the whole period.

Do Prestigious Underwriters Shape the Performance of SME IPOs in India?

2020 ◽  
pp. 097215092096321
Author(s):  
Nischay Arora ◽  
Balwinder Singh
Keyword(s):  
Initial Public Offerings ◽  
Stock Exchange ◽  
Least Square ◽  
Public Offerings ◽  
Least Square Regression ◽  
Long Run ◽  
Medium Enterprise ◽  
Underwriter Reputation ◽  
Ordinary Least Square Regression ◽  
The Impact

The present article aims to examine the impact of underwriter reputation on underpricing and long-run returns of small- and medium-sized enterprise (SME) initial public offerings (IPOs) over a 12-month period in an emerging country like India on a sample of 403 IPOs issued from 2012 to 2018 and subsequently listed on Bombay Stock Exchange (BSE) small and medium enterprise (SME) platform and National Stock Exchange (NSE) EMERGE. However, the migration of 27 SME IPO companies to main platform has resulted in reduced sample size of 376 IPOs for measuring long-run performance. The current study has utilized ordinary least square regression technique to investigate the concerned relationship. The robustness of the findings has been further ensured by checking for endogeneity bias using two-stage least square regression (2SLS). The results unveil that while underwriter reputation positively influences underpricing of SME IPOs, it has no significant impact on their long-run performance. This analysis may provide some meaningful information for policymakers responsible for reforms of Indian equity market. For SME issuers, the findings may provide some insights on the importance of hiring reputed underwriters in IPO process. The results may further assist the investors in improving their equity valuation and taking informed investment decisions.

scholarly journals Science and Innovation in 2019–2020: Resourcing, First Post-Crisis Assessments

2021 ◽  
pp. 13-30
Author(s):  
I. Kirichenko ◽  
A. Kravtsov ◽  
Z. Mamedyarov ◽  
N. Sheliubskaya
Keyword(s):  
Research And Development ◽  
Initial Public Offerings ◽  
Technology Development ◽  
Relevant Information ◽  
Innovation Activity ◽  
Public Offerings ◽  
The Us ◽  
The Usa ◽  
The Uk ◽  
The Impact

The impact of the COVID-19 pandemic on research and development (R&D) was a major factor for the global innovation activity in 2020. Prior to the pandemic, global R&D spending by both governments and private capital had been steadily increasing for a decade, resulting in a doubling of spending. In the US, growth was slower than in other countries, especially compared to China, causing the US share of global R&D to decline. At the end of 2020, it was clear that China's economy ended the year with fewer losses compared to the developed world, and local companies continued to increase R&D spending, which will contribute to Chinese innovation competition in the coming years. This 2020 report consists of several thematic blocks which will be retained in subsequent annual editions. First, there is a review and analysis of the most relevant information on countries' expenditures on research and development (R&D), in particular, the estimates of expenditures according to R&D World, the volume of federal funding for R&D in the USA for 2021, and the results of the annual European Innovation Scoreboard rating of innovative companies. Secondly, the results of international patenting data by country and industry are presented, using the latest available data for 2019. Third, given the importance of private companies' capital for innovation activity, a separate block includes the results of initial public offerings (IPOs) in 2020 on major stock exchanges (USA) and other platforms, as well as data on mergers and acquisitions, which remain the most important alternative to public offerings for raising capital by technology companies. Finally, the last block deals with changes in the innovation development strategies of the leading countries. The focus here is made on the implications of Brexit for the science and technology development of the UK and the EU, taking into account the parties' agreement on a trade deal for the period after the country's exit from the Union since January 1, 2021.

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