Initial Public Offerings (IPO)

An International Perspective of IPOs


  • Greg Gregoriou, School of Business and Economics, State University of New York, Plattsburgh, NY, USA

After the cooling off of IPOs since the dot com bubble, Google has rekindled the fire for IPOs. This IPO reader contains new articles exclusive to this reader by leading academics from around the world dealing with quantitative and qualitative analyses of this increasingly popular and important area of finance. Articles address new methods of IPO performance, international IPOs, IPO evaluation, IPO underwriting, evaluation and bookbuilding. Although numerous articles are technical in nature, with econometric and statistical models, particular attention has been directed towards the understanding and the applicability of the results as well as theoretical development in this area. This reader will assist researchers, academics, and graduate students to further understand the latest research on IPOs.
View full description


Researchers and academics in Finance


Book information

  • Published: December 2005
  • ISBN: 978-0-7506-7975-6


"Gregoriou once again offers us a collection of insightful and informative scientific articles. This reader covers the many interesting facets of IPOs, including performance studies in different countries, analysis of the underpricing phenomenon, as well as the role of the underwriters and the corporate structure on IPO valuations. The articles, written by both practitioners and academics, provide rigorous empirical analysis and offer intuitive conclusions. A great read for IPO aficionados!" -- Nicolas Papageorgiou, Assistant Professor of Finance, HEC Montreal "This collection of new articles on IPOs is literally a must-have handbook for investors, academics, and traders worldwide interested in studying IPO performance. The articles focus on IPOs on an international level thereby allowing the reader to compare the performance of IPOs in many countries. Initial Public Offerings truly adds to the existing IPO literature with a list of well known academics/contributors in the field of IPOs. This book truly presents the latest cutting edge research on European IPOs, Asian IPO and IPOs in other countries." --Komlan Sedzro, Professor of Finance, University of Quebec at Montreal "Now, whilst the IPO market is relatively calm,is a good period for some academic analysis of this phenomenon,and the idea of a global approach is highly innovative.The result is a wide-ranging and accesible book,that will be a valued reference work for scholars and practitioners." -- Dr. Stephen E. Satchell, University Reader, Cambridge University; Fellow, Trintiy College "This collection of timely articles provides further empirical evidence on the well-known IPO underpricing and long-run underperformance phenomena from a range of countries that differ in their market structures and regulatory environments. This wealth of new evidence will no doubt stimulate further work in the area." -- Alexander Ljungqvist, Associate Professor of Finance, Stern School of Business, New York University

Table of Contents

Part One Performance of IPOs1 Nasdaq IPO around the market peak in 2000Niklas Wagner1.1 Introduction1.2 Literature review1.3 The Nasdaq IPO dataset1.3.1 Data sources1.3.2 The sample1.3.3 Hot and cold subsamples1.3.4 Company characteristics 1.3.5 Nasdaq IPO returns1.3.6 Initial returns1.3.7 Long-run returns1.4 Conclusion AcknowledgmentsReferences 2 Returns to style investments in Initial Public OffersKojo Menyah and Krishna Pauydal2.1 Introduction2.2 Prior studies on investment styles and their returns2.3 Data, sample and empirical methods2.3.1 Data2.3.2 Characteristics of the sample2.3.3 Compositrion of style portflios2.3.4 Empirical models2.4 Empirical evidence2.4.1 Returns to value and growth styles2.4.2 Returns to size-based style investments2.4.3 Returns to underwriter quality style investments2.4.4 Bivariate analysis2.4.5 Test of robustness of results2.5 Conclusion 3 The long-run performance of Taiwan’s IPOs conditioning characteristics: evidence from efficiently learning marketsAnlin Chen, Sue L. Chiou and Chinshun Wu 3.1 Introduction3.2 Data3.3 Measuring IPO performance under efficient marklets hypothesis3.3.1 Using market return as benchmark and neglecting hidden information behind price limits 3.3.2 Using market return as benchmark and simulating the latent true prices behind price limits3.4 IPO performance under efficiently learning markets3.4.1 Using market return and benchmark without taking the hidden information behind price limits into account 3.4.2 Using the Fama-French return as benchmark and simulating the hidden information behind the price limits 3.5 Long-run performance conditioning on issue characteristics3.5.1 IPO long-run performance conditioning on IPO method3.5.2 IPO long-run performance conditioning on undepricing and the length of the waiting time to issue subsequent offerings3.5.3 IPO long-run performance conditioning on hot-issue period and industry3.6 ConclusionAcknowledgmentsReferences4 Short and long-run performance of IPOs traded on the Istanbul stock exchangeMehmet Orhan4.1 Introduction4.2 IPO performance4.3 Testing for the structural chnage of the CAPM at the 2001 economic crisis of Turkey4.4 Long-run relationship of the CAPM4.5 ConclusionReferences5 Indexing the IPO sector with IPOX™ indicesJosef A. Schuster5.1 Introduction5.2 Why are IPOs unique? The academic perspective 5.3 IPOX indices methodology5.4 IPOX indices analytics5.5 ConclusionReferences 6 The size effect of firm’s going public on the Spanish capital marketSusana Alvarez-Otero and Victor M. Gonzalez-Mendez6.1 Introduction6.2 Database6.3 Effect of the firm’s size on underpricing: long-term performance and the firm’s performance6.3.1 Intial underpricing and size6.3.2 Long-term performance and size6.3.3 Firm’s performance and size6.4 Conclusion 7 Earnings management and the lomg-run performance of Spanish inital public offeringsMaria J. Pastor-LLorca and Francisco Poveda-Fuentes 7.1 Introduction7.2 Sample and data sources 7.3 Post-offering stock return performance7.4 Measuring earnings managment7.4.1 Cross-sectional approach7.4.1.1 Modified Jones model in cross-section Poveda model in cross-section7.4.2 Panel data approach7.4.3 Performance matched abnormal accruals7.5 Earnings management in initial public offerings7.5.1 ROA evolution in IPO firms7.5.2 Matched performance abnromal accruals in IPO firms7.5.3 Earnings management and subsequent ROA reversals in IPO firms7.6 Earnings manageemnt and post-offering stock return underperformance7.6.1 Post-IPO returns by performance matched abnormal accruals terciles7.6.2 Post-IPO retuns and earnings management: regression analysis 7.7 ConclusionReferences 8 IPO Intial returns on European “new markets“Giancarlo Giudici and Peter Roosenboom8.1 Introduction 8.2 Review of the Literature8.3 Data and sample description8.4 Hypothesis and varibale measurement8.5 Empirical results8.6 ConclusionReferences9 Efficiency of U.S. Internet IPOs: a data envelopment analysis approachGreg N. Gregoriou and Maher Kooli9.1 Introduction9.2 Data9.3 Methodology9.4 Empirical results9.5 ConclusionAcknowledgmentsReferences Part TwoIPO Underpricing: International Evidence 10 Generalzing the winner’s curse hypothesis: the case of the Belgian IPO market Michel Boelen and Georges Hübner10.1 Introduction 10.2 Data and methodology10.2.1 Data10.2.2 Methodology10.3 Empirical results10.3.1 Raw underevaluation of IPOs10.3.2 Profitability of systematic subscription strategies over the whole period (1989-2004)10.3.3 Profitability of conditional subscription strategies10.3.3.1 Investment in bullish markets10.3.3.2 Invesmtnet in bookbuilding-based IPOs10.3.3.3 Investment in IPOs proposing new shares10.3.3.4 A combined strategy10.4 ConclusionAcknowledgmentsReferencesAppendix 11 Flipping activity in fixed offer price mechanism allocated IPOsDimitrios Gounopoulos11.1 Introduction11.2 Methodology and sample description11.3 Descriptive results on flipping11.3.1 Institutional versus individual allocation and flipping by filing range and intial returns11.3.2 Type of lead udnerwriter, allocations and flipping activity11.4 Specification of the models11.4.1 Explanation of control variables11.5 Cross ectional regression results11.6 ConclusionReferences12 Getting the IPO right: viva la France?Edel Barnes 12.1 Introduction12.2 IPO pricing methods12.3 IPOs and the French stock market 12.4 Study motivations, data and analysis12.5 Results and discussion12.6 ConclusionAcknowledgmentsReferences13 Underpricing and the aftermarket performance of inital public offerings: the case of AustriaWolfgang Aussenegg 13.1 Introduction 13.2 The new issue market in Austria 13.3 Data description13.4 Intial returns13.4.1 Research methodology13.4.2 Distribution13.4.3 Hypotheses to explain the level of underpricing13.4.4 Allocation (winder’s curse) hypothesis13.4.5 Ex-ante uncertainty hypothesis13.4.6 Underwriter reputation hypothesis13.4.7 Signalling hypothesis13.4.8 Regression analysis13.5 Aftermarket performance13.5.1 Research design13.5.2 Short-run performance13.5.3 Long-run performance13.5.4 Possble explanations for the observed long-run performance13.5.5 Regression analysis13.6 ConclusionAcknowledgmentsReferences 14 The hot-issue period in Germany-what factors drove IPO underpricing?Stefan Guenther and Marco Rummer14.1 Introduction14.2 Related research14.2.1 The basics of IPOs, bookbuilding and underpricing14.2.2 The hot-issue period14.2.3 Underpricing14.2.4 Long-run underperformance14.3 The dataset14.3.1 German market features14.3.2 Data sources14.4 Empirical analysis14.4.1 Descriptive statistics14.4.2 Underpricing by sectors and segments14.4.3 Average underpricing and issuing activity14.4.4 Underpricing and long-run underperformance14.4.5 Cross-sectional regression14.4.6 Ex-ante uncertainty14.4.7 Investor sentiment14.4.8 Agency conflicts14.4.9 Robustness14.5 ConclusionAcknowledgmentsReferences15 Reassessing Canadian IPO underpricing: evidence from common share, capital pool company and unit offeringMaher Kooli15.1 Introduction15.2 Background and hypothesis development 15.2.1 Size and underpricing15.2.2 Role of underwriter and underpricing 15.2.3 IPO market conditions and underpricing 15.3 Data and methodology15.4 Results15.4.1 The underpricing phenomenon in Canada15.4.2 Cross sectional patterns 15.4.3 Size15.4.4 Industry15.4.5 Underwriter reputation15.4.6 Market conditions15.5 Conclusion and Policy ImplicationsReferences16 IPO Underpricing and ownership structure: evidence from the Istanbul stock exchangeM. Banu Durukan 16.1 Intoduction16.2 Theoretical background16.3 Sampe and data 16.4 Empirical Findings16.5 Conclusion AcknowledgmentsReferencesPart ThreeCorporate Strucuture and IPO Evaluation 17 IPOs and earnings management in GermanyTereza Tykvova17.1 Introduction17.2 Data17.3 Methodology of Accrual Measurement 17.4 DCA by fiscal years17.5 Earnings management and stock performance 17.6 ConclusionAcknowledgments References 18 Signaling and the valuation of IPOs: regression testsSteven Xiaofan Zheng18.1 Introduction18.2 Regression model misspecification18.3 Simulated regressions18.4 Correcting the misspecification18.4.1 Alternative explanations18.5 ConclusionReferences19 The role of venture capitalists in IPO performance: emprical evidence from GermanyAndreas Hack and Erik E. Lehmann19.1 Introduction19.2 Venture capitalists as shareholders and IPO returns19.3 Data, measurement and estimation methods19.4 Descriptive statistics and empirical results 19.5 ConclusionReferences20 Ownership structure and intial public offerings in PortugalJosé Miguel Almeida and João Duque20.1 Introducution20.2 Reasons and findings around initial public offering patterns20.3 Data and methodology 20.4 Empirical results20.5 ConclusionAcknowledgmentsReferencesPart Four Bookbuilding, Listing and Underwriting21 Bookbuilding and shre pre-allocation in IPOsNancy Huyghebaert and Cynthia Van Hulle 21.1 Introduction21.2 Theory and hypotheses21.2.1 The role of bookbuilding in reducing information assymmetries 21.2.2 Motives underlying share pre-allocation in IPOs21.3 Sample selection and description21.4 Empirical results on bookbuilding and pre-allocation decisions21.4.1 Determinants of using bookbuilding21.4.2 Determinants of share pre-allocation21.5 Effects on underpricing and stock liquidity21.5.1 Impact of bookbuilding and share pre-allocation on underpricing21.5.2 Impact of bookbuilding and share pre-allocation on stock liquidity21.6 ConclusionAcknowledgments22 Costs and benefits in the choice of the audit and underwriting qualitiy in the IPO market: an empirical analysis of competing theoriesJoseph Aharony, Ran Barniv and Chan-Jane Lin22.1 Introduction22.2 Contribution to the literature22.3 Supply-side and demand side hypotheses22.4 Data and sample statistics22.5 Research method22.5.1 Firm-specific rsk measures22.5.2 Testing the supply-side and demand-side hypothesis22.6 Results22.6.1 Supply-side indicators 22.6.2 Demand-side indicators 22.7 ConclusionAcknowledgmentsReferences 23 Siamese Twins and Virtual Mergers: Dual Listed Companies in AustraliaPaul Ali 23.1 Introduction23.2 Dual listed compnaies23.2.1 A brief hsitroy of dual listed companies23.2.2 The dual listed compnaies structure23.2.3 Combined entities structure23.2.4 Separate entities structure23.2.5 Stapled securities strucuture 23.2.6 Contratcual arrangements23.2.7 Why use the dual liasted companies strucuture?23.3 Some legal issues23.4 Conclusion AcknowledgmentsReferences24 Equity issuance trends in Australia’s listed investment fund marketsMartin Gold 24.1 Overview 24.2 Institutional details and market structure24.2.1 Demand factors24.2.2 Poor absolute performance of mutual funds24.2.3 Growth of self managed pension funds24.2.4 Strategy differentiation and effective diversification24.2.5 Choice and investor-directed platforms24.2.6 Fees and expenses-distribution costs of mutual funds industry model 24.2.7 Incresing investor emphasis on post-tax economic returns24.3 Supply-factors24.3.1 Rationalization, scale building, and business model diversification by fund managers24.3.2 The increasing popularity of boutique fund managers24.3.3 Good market-timing and statistical fillips24.3.4 Concerted efforts to expand the listed investment fund market 24.4 Recent issuance trends24.5 Performance of listed funds sector including recent fund IPOs24.5.2 NTA discount and premiums of the Australian shares listed funds sector24.6 Return performance of recent listed investment fund IPOs24.7 Conclusion References25 Do underwriters create value for issuers by subjectively determining offer prices?Steve Dolvin25.1 Introduction25.2 Background 25.2.1 The role of the udnerwriter25.2.2 Obective pricing methods25.3 Data summary statistics25.3.1 Statistrics by underwriter quality level25.3.2 residual income model sample25.4 Determiningoffer prices25.4.1 Full information price25.4.2 Residual income model evaluation25.4.3 Price ratio analysis25.5 ConclusionAppendix References