Price Determination in Public Offering and Evaluation Methods

2015 ◽  
pp. 144-165
Author(s):  
Ümit Hacıoğlu ◽  
Hasan Dinçer ◽  
Zuhal Akça
Keyword(s):  
Performance Evaluation ◽  
Initial Public Offering ◽  
Capital Markets ◽  
Evaluation Methods ◽  
Price Determination ◽  
Key Factors ◽  
Advanced Economies ◽  
Ipo Pricing ◽  
And Performance ◽  
Public Offering

The latest financial situation in capital markets in advanced economies, emerging markets, and the Euro zone illustrates that volatility and risks related to global economic activity and global financial markets have impact on local capital markets and directly affects the value of company stocks even though an investor diversified his/her risk by investing in a portfolio. The initial public offering process, performance evaluation methods, and price determination became key factors for companies and investors. In this chapter, advantages and disadvantages of IPO, pricing methods and performance evaluation methods are assessed.

Price Determination in Public Offering and Evaluation Methods

2017 ◽  
pp. 1293-1315
Author(s):  
Ümit Hacıoğlu ◽  
Hasan Dinçer ◽  
Zuhal Akça
Keyword(s):  
Performance Evaluation ◽  
Initial Public Offering ◽  
Capital Markets ◽  
Evaluation Methods ◽  
Price Determination ◽  
Key Factors ◽  
Advanced Economies ◽  
Ipo Pricing ◽  
And Performance ◽  
Public Offering

The latest financial situation in capital markets in advanced economies, emerging markets, and the Euro zone illustrates that volatility and risks related to global economic activity and global financial markets have impact on local capital markets and directly affects the value of company stocks even though an investor diversified his/her risk by investing in a portfolio. The initial public offering process, performance evaluation methods, and price determination became key factors for companies and investors. In this chapter, advantages and disadvantages of IPO, pricing methods and performance evaluation methods are assessed.

scholarly journals IPO Pricing Phenomena: Empirical Evidence Of Behavioral Biases

2011 ◽  
Vol 6 (4) ◽  
Author(s):  
Michael Adams ◽  
Barry Thornton ◽  
George Hall
Keyword(s):  
Initial Public Offering ◽  
Behavioral Finance ◽  
Efficient Market Hypothesis ◽  
Class Action ◽  
Investment Horizon ◽  
Efficient Market ◽  
The Past ◽  
Ipo Pricing ◽  
Public Offering ◽  
Substandard Performance

Does IPO stand for Instant Profit Opportunity or It’s Probably Over-priced?  The conundrum is that both answers are generally correct.  The answer appears to depend on the investor’s investment horizon.  This realization provides an enigma for the Efficient Market Hypothesis (EMH) proponents. It is widely known that initial public offering (IPO) stocks in the past have typically been underpriced, thereby allowing the fortunate purchaser to buy the shares in the primary market and systematically beat the stock market averages. This phenomenon is evidenced by the average one-day returns on IPOs of 15% and presents a puzzle to efficient market advocates. Behavioral finance posits that the same underpriced IPO stocks will under-perform the market and deliver substandard performance during the ensuing one to three years. At a minimum, the “new-issues puzzle” presents a challenge to the EMH and has given rise to many class-action stockholder lawsuits alleging illegal price manipulation.   Why under-pricing systematically happens and why issuing firms/major shareholders choose to leave copious amounts of money on the table is not well explained by traditional financial theory.  Behavioral finance melds together investor psychology and normative financial theory in an attempt to explain this market enigma.

Does prospectus information matter in IPO pricing?

2018 ◽  
Vol 9 (4) ◽  
pp. 514-530 ◽  
Author(s):  
Rasidah Mohd-Rashid ◽  
Mansur Masih ◽  
Ruzita Abdul-Rahim ◽  
Norliza Che-Yahya
Keyword(s):  
Initial Public Offering ◽  
Institutional Investors ◽  
Ordinary Least Squares ◽  
Quadratic Model ◽  
Cross Sectional ◽  
Content Type ◽  
Ipo Pricing ◽  
The Government ◽  
Public Offering ◽  
Lower Uncertainty

Purpose The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price. Design/methodology/approach This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model. Findings The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price. Research limitations/implications This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant. Originality/value This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

Part III Beyond the Transatlantic Corridor, 10 The Paradoxes of Islamic Capital Markets

2021 ◽  
Author(s):  
Jordan Cally
Keyword(s):  
Initial Public Offering ◽  
Capital Markets ◽  
International Institutions ◽  
International Markets ◽  
Islamic Finance ◽  
International Capital ◽  
Gulf Region ◽  
International Capital Markets ◽  
Saudi Aramco ◽  
Public Offering

This chapter describes Islamic capital markets. Led by Malaysia and its distinct Islamic Market, Bursa Malaysia-I, Islamic finance has entered the mainstream of international capital markets, primarily in the form of ‘Islamic bonds’ (sukuk) and fund products. Saudi Arabia, with its well-publicized Saudi Aramco initial public offering (IPO) in 2019, raised, less successfully, a different flag in the international markets. Islamic finance has infiltrated conventional markets too. Non-Islamic issuers, sovereigns, corporates and international institutions, have issued sukuk, attracted by the wash of liquidity and investors in the Gulf region. Indeed, Islamic finance has been rubbing shoulders with modern conventional finance for several decades now. As ‘conventional’ finance has become less ‘conventional’, shari'a compliant finance has become more accepted. Impediments to growth persist; the imperviousness to standardization and the artificiality of the structures underlying the financial products increase costs and possibly risk, making the products uncompetitive. However, cost is not the only consideration in the marketplace. With greater interest in ethical and ESG (environmental, social, and governance) investing, Islamic finance may be the path or the way to future markets.

Software Firm Cost Structure and Its Impact on IPOs in the E-Commerce Era

2010 ◽  
Vol 6 (1) ◽  
pp. 19-31
Author(s):  
Richard B. Carter ◽  
Troy J. Strader
Keyword(s):  
Initial Public Offering ◽  
Cost Structure ◽  
Growth Strategy ◽  
Strategic Issues ◽  
Marginal Costs ◽  
Cost Structures ◽  
Software Firm ◽  
And Performance ◽  
Using Data ◽  
Public Offering

The first decade of the e-commerce era saw an increase in activity in the software development industries as new firms were created and existing firms made acquisitions. Many firms pursued a growth strategy and this growth required capital that was often obtained through an initial public offering (IPO) of equity. Software firm cost structures are very different from traditional physical goods firms because their marginal costs are much lower, but what is not known is whether this affects their financing strategies. In this study we compare software firm and traditional firm IPOs using data from 780 IPOs offered during the late dot-com era (1998-2002) to identify differences in firm and offer characteristics, investment risk, initial returns, and underwriting activity. We find that the characteristics and performance of software firm IPOs are significantly different from IPOs offered by raditional firms during this time period providing supporting for our conclusion that firm cost structure should be considered when analyzing IPOs and other strategic issues.

Why Do IPO Offer Prices Only Partially Adjust?

2014 ◽  
Vol 04 (03) ◽  
pp. 1450009 ◽  
Author(s):  
Özgür Ş. İnce
Keyword(s):  
Initial Public Offering ◽  
Private Information ◽  
Information Acquisition ◽  
Structural Model ◽  
Public Information ◽  
Public And Private ◽  
New Information ◽  
Pricing Process ◽  
Ipo Pricing ◽  
Public Offering

This study develops a structural model of the initial public offering (IPO) pricing process that enables the estimation of adjustment rates for public and private pricing information gathered during bookbuilding. The estimated upward adjustment rate of public information is only 21%, significantly less than the 28% rate of private information. Adjustment rates decline towards the IPO date, especially for upward adjustments. The findings contradict information acquisition theories that predict a complete adjustment to public information and highlight the inefficiency of the IPO bookbuilding mechanism in handling new information even when information is publicly available and especially when it is favorable.

U.S. Big 4 and Local Auditors in the China Initial Public Offering Market

2019 ◽  
Vol 22 (04) ◽  
pp. 1950024 ◽  
Author(s):  
Zhi-Yuan Feng ◽  
Hua-Wei Huang ◽  
Mai Dao
Keyword(s):  
Initial Public Offering ◽  
Audit Quality ◽  
Audit Fees ◽  
Agency Conflicts ◽  
Accounting Firms ◽  
Corporate Fraud ◽  
Big 4 ◽  
Investment Distortions ◽  
Ipo Pricing ◽  
Public Offering

This paper examines (1) whether auditor type affects initial public offering (IPO) pricing; (2) whether the effect of IPO pricing is different for clients with different ownership structures. We find that (1) firms being audited by Big 4 accounting firms receive IPO premium while others being audited by local accounting firms do not; (2) Big 4 auditors receive higher audit fees than China’s Top 10 or small local auditors. This paper extends the prior research (e.g., Kumar, P and N Langberg (2009). Corporate fraud and investment distortions in efficient capital markets. The RAND Journal of Economics, 40, 144–172) that reduces agency conflicts between shareholders and manager (by means of better audit quality) and also reconciles corporate misreporting and investment distortions.

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