Journal articles on the topic 'IPO firms'
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1
Edwards, Alexander, Michelle Hutchens, and Sonja Olhoft Rego. "The Pricing and Performance of Supercharged IPOs." Accounting Review 94, no. 4 (October 1, 2018): 245–73. http://dx.doi.org/10.2308/accr-52304.
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ABSTRACT This study examines a new form of initial public offerings, “supercharged” IPOs, where a firm-organized pre-IPO as a pass-through entity undergoes a series of transactions that steps-up the adjusted tax basis of the IPO firm's assets. This step-up imposes tax liabilities on pre-IPO owners, but also creates significant future tax benefits for the firm; the average anticipated deferred tax asset is $486 million ($13 per share) for our sample of supercharged IPO firms. Pursuant to tax receivable agreements, supercharged IPO firms pay a large portion of these tax benefits to pre-IPO owners as they are realized in the future. Future firm performance must be sufficiently strong for the IPO firm and the pre-IPO owners to realize the future tax benefits created by the supercharged transaction structure. We hypothesize and provide evidence of higher IPO offer prices and stronger future performance for supercharged IPO firms relative to traditional IPO firms. JEL Classifications: G14; G32; G34; H25.
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Naoko, Matsuda, and Matsuo Yutaka. "Governing board interlocks: As an indicator of an IPO." Corporate Board role duties and composition 12, no. 3 (2016): 14–24. http://dx.doi.org/10.22495/cbv12i3art2.
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Using comprehensive data of Japanese firms, including small-sized and unlisted firms, this paper empirically analyzes how a governing board composition impacts initial public offerings (IPOs). The results show that board size, interlocks with other firms, and interlocks with other listed firms are all positively related to the probability of an IPO. They imply that a firm’s intention to conduct an IPO can be estimated by the size and interlocks, and that knowledge diffusion of an IPO occurs among firms.
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Spiegel, Matthew, and Heather Tookes. "Why Does an IPO Affect Rival Firms?" Review of Financial Studies 33, no. 7 (August 2, 2019): 3205–49. http://dx.doi.org/10.1093/rfs/hhz081.
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Abstract IPO firms’ rivals tend to experience performance declines following an IPO in the industry. Why? We estimate a dynamic structural oligopoly model to distinguish between alternative theories that can explain an industry’s evolution post-IPO. We find that most changes in rivals’ performance are due to industry trends that also drive IPOs. However, we also find some “competitive” IPOs where the IPO enhances the IPO firm’s performance at the expense of competitors. These findings help reconcile prior evidence of average performance reductions of both IPO firms and their rivals with well-known cases in which firms have benefited from going public. (JEL G30, G32) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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Mun, Sung Gyun, and SooCheong (Shawn) Jang. "Restaurant firms’ IPO motivations and post-IPO performances." International Journal of Contemporary Hospitality Management 31, no. 9 (September 9, 2019): 3484–502. http://dx.doi.org/10.1108/ijchm-08-2018-0677.
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Purpose This study aims to identify why restaurant firms go public (IPO) despite high financing costs and which factors make firms stay public for the long term after an IPO. Also, this study aimed to link and compare restaurant firms’ pre- and post-IPO accounting information and how IPO proceeds were used. Design/methodology/approach This study used random-effects regression analysis with a number of dependent variables for a sample of 1,347 unbalanced panel data. In addition, logistic regression analyses were used to identify why restaurant firms were delisted within short periods after going public. Findings First, rebalancing financial structures was the most important reason for IPOs, whereas financing future growth was only a minor motivation. Second, post-IPO performance significantly differed between restaurant firms based on their pre-IPO financial conditions, as well as how they used IPO proceeds. Third, restaurant firms with low profitability, inefficient non-operating expenses and difficulties in generating revenue increased their financial burdens, which ultimately caused restaurant firms to be delisted within a short period after an IPO. Furthermore, the reasons for merging included cash shortages, large short-term liabilities and increased major operating expenses, together with increases in capital expenditures. Originality/value This study is unique, in that it explains the relationships between motivations for going public and post-IPO performances by directly linking the usages of IPO proceeds with firms’ operational performances. To the best of the authors’ knowledge, this study is the first to examine the effects of IPOs on restaurant firms’ operational, non-operational, investment and financial activities on firms’ performances.
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Li, Wei, Yajing Li, and Hongquan Zhu. "Government Intervention in IPO—Evidence on the Exemption from IPO Regulatory Requirements in China." Journal of International Accounting Research 15, no. 2 (June 1, 2016): 79–96. http://dx.doi.org/10.2308/jiar-51499.
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ABSTRACT This study examines whether and how the Chinese central government's intervention in the IPO process, in terms of the State Council's granting the discretionary exemption to help IPO firms circumvent its own regulation on the three-year operation requirement, is related to the quality of IPO firms and investor protection. The results show that the State Council grants the exemption to IPO firms with relatively better operating performance in both the pre-IPO and the post-IPO periods. Although the financial information of exempt IPO firms for the pre-IPO period is pro forma, investors do not show more concern. As a result, they do not react more negatively to these firms than to the regular IPO firms on the IPO day. Moreover, the stock of exempt IPO firms outperforms that of regular IPO firms in both the short term and the long term after the IPO. Overall, the results indicate that the central government can sometimes act as a helping hand, which produces positive impacts on resource allocations.
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Sudana, I. Made, and Ni Putu Nina Aristina. "CHIEF EXECUTIVE OFFICER (CEO) POWER, CEO KELUARGA, DAN NILAI IPO PREMIUM PERUSAHAAN KELUARGA DI INDONESIA." Jurnal Akuntansi 21, no. 2 (June 8, 2017): 219. http://dx.doi.org/10.24912/ja.v21i2.196.
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The development of family firms led to increase the funding requirement for expansion. Family firms can obtain funds from capital market by doing initial public offering (IPO). The aims of this research is to know the influence of CEO power using proxy of CEO voting right, CEO tenure, and CEO interlock on IPO premium, and the influence of family CEO on IPO premium. This research uses 65 samples of family firm in Indonesia during 2001-2014. The result of multiple regression showed that CEO voting right, CEO interlock, and family CEO are positive significantly affect IPO premium. This finding reveal that when investors make investment decision on IPO’s firms, they will evaluate the quality of firm’s CEO. Also, the presence of family CEO increase investor’s valuation on company shares that increase IPO premium.
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Andrews, Alice O., and Theresa M. Welbourne. "The People/Performance Balance in IPO Firms: The Effect of the Chief Executive Officer's Financial Orientation." Entrepreneurship Theory and Practice 25, no. 1 (October 2000): 93–106. http://dx.doi.org/10.1177/104225870002500108.
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Welbourne and Andrews (1996) studied IPO firms and found that Tobin's Q, at the time of the IPO, was lower for firms that they coded as having higher levels of human resource value (HR Value). However, those same firms were more likely to survive five years after the IPO. Given that finding, this study examines one factor that may influence the firm's choice between maximizing short-term financial performance (doing well at the IPO) or long-term performance (maximizing HR value). Using the theory of upper echelons (Hambrick & Mason, 1984), we show that the decision on how to balance these forces is shaped in part by the chief executive officer's (CEO) functional background. We focus on CEOs with primary training in finance because they will most closely identify with investment community pressures to perform well at the time of the IPO. In two different samples of IPO firms, we find that the CEO's financial background is associated with lower levels of human resource value, but, contrary to what we expected, having a finance-oriented CEO does not maximize short-term gains in the IPO.
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Yang, Songling, Mengwei Liu, Hemei Li, Juncheng Li, and Qiuyue Zhang. "Earnings Management for Second-time IPOs: Evidence from China." Applied Economics and Finance 8, no. 3 (May 26, 2021): 22. http://dx.doi.org/10.11114/aef.v8i3.5245.
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In China’s IPO market, firms that fail in their first IPO application make considerable adjustments before making their second IPO application. Examining firms that applied for IPOs during 2004-2018, we find that failed IPO applicant firms “package” themselves to obtain approval of the China Securities Regulatory Commission (CSRC) by reducing accrual earnings management and increasing real earnings management. In addition, after a successful second IPO application, these firms relax their vigilance vis-à-vis the CSRC and increase both accrual and real earnings management. This pre-IPO “packaging” behavior deceives investors, leading to higher IPO prices and higher post-IPO returns.
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Li, Rui, Wei Liu, Yong Liu, and Sang-Bing Tsai. "IPO Underpricing After the 2008 Financial Crisis: A Study of the Chinese Stock Markets." Sustainability 10, no. 8 (August 10, 2018): 2844. http://dx.doi.org/10.3390/su10082844.
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A firm’s capability of raising funding is closely related to its sustainable development. With a more efficient allocation of funding among the whole society, social resources will be better utilized. Initial Public Offering (IPO) can indeed be an effective means of raising capital for corporate ventures. Using 1069 firms which completed IPOs on Chinese stock exchanges between 1st January 2004 and 1st January 2013, we investigate the difference in IPO underpricing before and after the 2008 financial crisis. Based on OLS regression models, we find that the IPOs are less underpriced in the post-crisis period. We examine the moderating effects of firm size on the difference in IPO underpricing between pre- and post-crisis periods, finding that small firms experienced less IPO underpricing than large firms after the financial crisis. After applying different model specifications such as Robust and OProbit regressions, the results remain consistent. Our study contributes to understanding the dynamics and influences of the financial crisis on firms’ IPO cost from the perspective of information asymmetry.
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Krishnan, C. N. V., Vladimir I. Ivanov, Ronald W. Masulis, and Ajai K. Singh. "Venture Capital Reputation, Post-IPO Performance, and Corporate Governance." Journal of Financial and Quantitative Analysis 46, no. 5 (May 3, 2011): 1295–333. http://dx.doi.org/10.1017/s0022109011000251.
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AbstractWe examine the association of a venture capital (VC) firm’s reputation with the post-initial public offering (IPO) long-run performance of its portfolio firms. We find that VC reputation, measured by the past market share of VC-backed IPOs, has significant positive associations with long-run firm performance measures. While more reputable VCs initially select better-quality firms, more reputable VCs continue to be associated with superior long-run performance, even after controlling for VC selectivity. We find that more reputable VCs exhibit more active post-IPO involvement in the corporate governance of their portfolio firms, and this continued VC involvement positively influences post-IPO firm performance.
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Yi, Heein, Sangsoo Kim, and Seunghun Han. "Choice between Acquisition and Joint Venture Based on Financial Statement Comparability." Sustainability 13, no. 11 (May 31, 2021): 6218. http://dx.doi.org/10.3390/su13116218.
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This study examined the relationship between target firms’ financial statement comparability and bidder firms’ boundary decisions. The study used initial public offering (IPO) firms as target firms to test the impact of asymmetric information and signaling on investing bidder firms’ boundary decisions, such as joint ventures or acquisitions. In the IPO market, as an experimental setting, bidder firms are unfamiliar with issuing firms because they have little information about them prior to the IPO. This study argues that IPO firms with higher accounting comparability show lower information asymmetry. Consistent with this argument, we found that IPO firms’ accounting comparability has a positive probability of becoming a target for either a joint venture or acquisition, or an acquisition instead of a joint venture. This study contributes to the literature, financial statement comparability, and joint venture and acquisition decisions to measure the degree to which information asymmetry affects corporate investment strategy using a unique experimental setting of IPO firms.
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Xu, Zhi-Jian, Li Wang, and Jing Long. "The impact of director’s heterogeneity on IPO underpricing." Chinese Management Studies 11, no. 2 (June 5, 2017): 230–47. http://dx.doi.org/10.1108/cms-05-2016-0095.
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Purpose The purpose of this paper is to investigate whether the Boardroom heterogeneity affects IPO underpricing for entrepreneurial firms, where Boardroom heterogeneity was classified in terms of functional background, educational background, age and length of tenure. Design/methodology/approach A national research design was conducted using data collected from 355 firms listed on China’s Growth Enterprise Market from its start in 2009 to 2012. Findings The author found that IPO underpricing has a significant negative correlation with functional heterogeneity, a positive correlation with educational heterogeneity, a significant negative correlation with age heterogeneity, but it does not show significant correlation with heterogeneity in tenure. Board heterogeneity affects IPO underpricing of entrepreneurial firms partially, which means functional, educational and age heterogeneity conveys signals to potential investors regarding a firm’s quality. Research/limitations/implications More entrepreneurial firms in more years for data and long-term performance research design in future research would be required for further understanding of the relationships among the variables in this study. Practical/implications This paper suggests that IPO firms may make use of such an influencing mechanism to determine the issue price or to control the IPO underpricing by showing the Boardroom heterogeneity. Originality/value This paper revealed the influence of the characteristics of board members of such firms on IPO underpricing, which is rare in recent studies comparing to the study for the top management team; also this study provides empirical support for such effect.
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Djerbi, Chiraz, and Jarboui Anis. "Boards, retained ownership and failure risk of French IPO firms." Corporate Governance 15, no. 1 (February 2, 2015): 108–21. http://dx.doi.org/10.1108/cg-10-2013-0115.
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Purpose – This paper aims to investigate the relationship between corporate governance structures of French initial public offering (IPO) firms and the likelihood of failure and involuntary delisting from the stock exchange in the long run. Design/methodology/approach – A matched-pairs research design was used and 36 delisted IPO firms were compared to an equal number of control IPO firms matched in terms of time, size and industry. Conditional logistic regression analyses were performed, and it was found that corporate governance structures in delisted IPO firms were relatively weak compared to control IPO firms. Findings – A significant negative association was found between the likelihood of exchange delisting and the proportion of independent directors. A positive and significant relationship was also found between the likelihood of exchange delisting on the one hand and the chief executive officer/Chair role duality and the retained ownership by insiders after the IPO on the other hand. However, no relationship was detected between IPO failure risk and board size at the IPO time. Originality/value – Retained ownership and failure risk of French IPO firms.
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Jeon, Jin Q. "Spillover Effects of Analyst Coverage on IPO Firms." Korean Journal of Financial Studies 50, no. 5 (October 31, 2021): 473–96. http://dx.doi.org/10.26845/kjfs.2021.10.50.5.473.
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This study investigates the effect of analysts’ recommendations and earnings forecasts for newly listed firms in the same industry. IPO underpricing is significantly lower as the number of firms whose investment recommendations are upgraded increases, supporting the contagion effect hypothesis that a high affinity for the industry has a positive effect on the IPO offer price. However, as the number of listed firms with higher earnings forecasts increases, IPO underpricing is higher, which supports the competitive effect hypothesis that the profit growth of competitors negatively affects IPO firms’ competitiveness. The effects vary depending on the competitive positions of both listed firms and IPO firms within the industry. The results also show that in industries with high concentration (i.e. low competition) , analyst information on listed firms has a greater contagion effect, while the competition effect hypothesis that better earnings forecasts for rival firms negatively affect IPO firms’ competitive position is not supported. This study contributes to the literature by analyzing the information spillover effect of analyst coverage in the IPO market by showing that the effects vary depending on the firms’ competitive positions as well as industry competition.
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Suherman, Danni Winadi, and Gatot Nazir Ahmad. "The effect of corporate performance on the stocks in the companies doing IPO." Journal of Economics, Business and Accountancy Ventura 19, no. 1 (July 31, 2016): 125. http://dx.doi.org/10.14414/jebav.v19i1.532.
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This study tries to (1)to examine the difference of corporate social performance (CSP) between the old IPO firms and the new IPO firms, and (2)to investigate the influence of corporate social performance (CSP) on stock return. Corporate social performance (CSP) is measured using NH approach and stock return is measured using cumulative abnormal returns (CAR) and holding-period returns (HPR). The sample covers 75 IPO firms listed on the Indonesia Stock Exchange between 2011 and April 2015. Our study employs independent sample test and ordinary least square (OLS) regression to analyze the research models. The results show that 1) there is significant difference in corporate social performance (CSP) between the old IPO firms and the new IPO firms, and 2)CSP has positive and significant effect on stock return, controlling for firm size, firm growth, institutional ownership and managerial ownership. Robustness tests support the results. Investor should pay much more attention on the old IPO firms and corporate social performance (CSP). Firms that are going to sell IPO stocks, specifically for young firms, should concern more on social responsibilities.
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Ndubizu, Gordian A. "Do Cross-Border Listing Firms Manage Earnings or Seize a Window of Opportunity?" Accounting Review 82, no. 4 (July 1, 2007): 1009–30. http://dx.doi.org/10.2308/accr.2007.82.4.1009.
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Firms raising new equity capital at cross-listing (IPO) and those crosslisting existing home-country public shares (non-IPO) benefit from earnings that are high when they cross-list on U.S. stock exchanges. IPO firms have greater benefits than non-IPO firms because they receive cash infusion at listing. I find that performance (ROA) and cash flows peak at cross-listing period for all cross-border firms. Using a matched-firm research design to control for industry and performance, the results suggest that both IPO and non-IPO firms time cross-listing when performance is peaking (seize a window of opportunity). Further tests investigate whether IPO and non-IPO firms differ in their incentives to engage in earnings management at the time of cross-listing. The results suggest that both appear to engage in the same level of earnings management at the time of cross-listing. This suggests that incentives to boost earnings to obtain higher cash infusion are not the main motivation for the earnings management observed. Other incentives, such as greater investor recognition could be a stronger motivation.
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McConaughy, Daniel L., Manjeet S. Dhatt, and Yong H. Kim. "Agency Costs, Market Discipline and Market Timing: Evidence from Post-IPO Operating Performance." Entrepreneurship Theory and Practice 20, no. 2 (January 1996): 43–58. http://dx.doi.org/10.1177/104225879602000205.
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We compare ninety-nine 1985 IPO firms with a matched sample of “seasoned” firms. The IPO firms were more efficient and profitable, yet exhibited declining market-to-book-equity ratios over the 1985-1992 period. However, we observe no significant trend toward lower efficiency or profitability among the IPO firms. In fact, we observe a significant improvement in operating efficiency five to six years after the IPO. Post-IPO evidence suggests that (1) agency costs do not Increase; (2) the markets discipline entrepreneurs with incentives to maintain pre-IPO performance; and (3) poor stock performance is due to investors who overpay, extrapolating current performance into the future.
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Bao, Ben-Hsien, Richard Chung, Yanjun Niu, and Steven Wei. "Real and accrual earnings management around IPOs: US evidence." Corporate Ownership and Control 10, no. 3 (2013): 76–94. http://dx.doi.org/10.22495/cocv10i3art7.
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This study examines the presence of real activities manipulation (REM) of IPO firms utilizing the cross-sectional regressions on each industry-year (Roychowdhury, 2006). The real activities examined in this paper include sales manipulation, reduction of discretionary expenses and overproduction. We show that IPO firms have significantly negative abnormal cash flows from operations and significantly positive abnormal production costs in the IPO year. The findings suggest that IPO firms not only manipulate accruals to inflate reported earnings, but also engage in real activities manipulation. We also show that IPO firms‟ decisions to manipulate earnings in the IPO year is positively related to the amounts of IPO proceeds and negatively related to the underwriters‟ reputation rankings and the presence of venture capital
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Jain, Bharat A., and Yingying Shao. "Family ownership, governance choices and post-ipo performance." Corporate Ownership and Control 14, no. 4 (2017): 216–26. http://dx.doi.org/10.22495/cocv14i4c1art4.
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The purpose of this study is to evaluate the extent governance choices at the time of going public differ for family versus non family firms. In addition, the short and long-run performance of family and non-family firms after their initial public offering (IPO) is examined. The results indicate significant differences between family versus non-family firms on governance choices at the time of their IPO related to dual class structures, board composition, board size, and board leadership structure. Additionally, the results suggest that investors assign a lower valuation at IPO to family firms. Further, governance mechanism that strengthen family control differentially influence post-IPO underpricing. Finally, the results suggest that family firms underperform non-family firms in terms of long-run post-IPO investment performance.
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Heryan, Yosi Dwi, and Zaenal Alim Adiwijaya. "ANALISIS PENGARUH KUALITAS AUDIT DAN UKURAN PERUSAHAAN TERHADAP MANAJEMEN LABA." Jurnal Akuntansi Indonesia 2, no. 1 (November 14, 2016): 65. http://dx.doi.org/10.30659/jai.2.1.65-71.
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The purpose of this research is to investigate and get empirical about auditor big four, auditor industry specialist, and size in the earning management limit by the firms audited for IPO firms. Earning management on this research is use discretionary accrual. Audit quality on this research is used by auditor big four and auditor industry specialist. Size on this research is measured by total assets. The object of this research is non finance firms which do IPO (Initial Public Offerings) in Indonesia. It used 47 Indonesia IPO firms from 2008-2011. The method of data collection is purposive sampling method. Multiple regression is used to analysis data and develops the theory model. The result of this research indicates that auditor big four proved cannot limit the earning management for firms which is audited by auditor big four when firms do IPO. Auditor industry specialist can limit the earning management when firms do IPO in Indonesia. Size cannot limit the earning management when the firms do IPO in Indonesia
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Chintya, Nadia Marcha, Nadya Theodora, Vania Evelyn, and Adrian Teja. "Short-Term and Long-Term Effect of Firms’ IPO on Competitors’ Performance." Journal of Finance and Accounting Research 2, no. 1 (February 28, 2020): 1. http://dx.doi.org/10.32350/jfar/0201/05.
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This study provides empirical evidence on the short term and the long term effects of initial public offering (IPOs) by firms, on their competitor firms’ performance in Indonesia. We perform short-run and long-run event studies and cross sectional regressions over the period 2010 to 2017 and find that both IPO firms and their competitors experience positive stock returns in the short-run and in the long-run. We find that IPO firms’ stock performance is relatively stable in the long-run that enables the competitor firms’ stock returns to catch up with IPO firms’ stock performance. We find negative effect of IPO firms’ stock performance on their competitors’ stock performance in the short-run, and a positive effect in the long-run. Our findings imply that IPO firms provide good information to the industry and no obvious competitive landscape changes are observed.
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Ozdemir, Ozgur, and Murat Kizildag. "Does franchising matter on IPO performance?" International Journal of Contemporary Hospitality Management 29, no. 10 (October 9, 2017): 2535–55. http://dx.doi.org/10.1108/ijchm-11-2015-0662.
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Purpose This paper has two main purposes. First, this paper aims to examine whether pre-initial public offering (IPO) franchising activity of issuing firms is priced in the financial markets and results in pricing differential between franchising and non-franchising firms at the time of IPO. Second, the paper aims to find out whether firms with pre-IPO franchising achieve better post-IPO stock performance compared to non-franchising firms. Design/methodology/approach To test research hypotheses, empirical models were developed and tested through ordinary least square regression analysis. Several data sources were used including Thomson One Banker’s SDC database, Compustat/CRSP and IPO prospectuses. Findings The paper provides further insights to the underpricing phenomenon surrounding IPOs and long-run performance of IPO shares subsequent to listing. Particularly, the study reveals that franchising firms underprice their issues to a higher degree compared to non-franchising firms, and franchising positively affects the post-IPO benchmark adjusted cumulative abnormal returns (CARs) over a three-year observation period. Research limitations/implications Because the study tests the proposed hypotheses using data only from the restaurant industry, the research results may lack generalizability. Therefore, researchers are encouraged to test similar hypotheses using larger sample sizes from other industries. Practical implications The study’s findings have important implications both for IPO issuers in positioning their offering and for IPO investors in comparing IPO stocks and forming long-run portfolios. Originality/value This paper contributes both to the IPO and franchising literatures by providing primary insights about how investors perceive pre-IPO franchising and incorporate their perception into their pricing at an IPO.
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Shen, Fong-Yi, and Yeong-Jia Goo. "The IPO initial returns-aftermarket risk question revisited: evidence from firms in Taiwan." Investment Management and Financial Innovations 16, no. 2 (April 12, 2019): 14–24. http://dx.doi.org/10.21511/imfi.16(2).2019.02.
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The purpose of this study is to utilize the Three Stage Least Squares (3SLS) of the simultaneous equation estimation approach to revisit the possible cross relationship between IPO initial returns and aftermarket risk. A structural form equation system of IPO initial returns and aftermarket risk equations is estimated first to obtain the structural form coefficients. The analytically derived reduced form coefficients are then calculated to analyze the net effects of each exogenous variable on two endogenous variables. Major findings of this study are as follows. First, the signs of net effects of all exogenous variables on IPO initial returns and aftermarket risk are the same. In other words, any change in exogenous variables, IPO initial returns and IPO aftermarket risk will change in the same direction, i.e., the higher (lower) the IPO initial returns, the higher (lower) the IPO aftermarket risk. Second, the less the degree of corporate governance, the higher the IPO initial returns and aftermarket risk. Third, the higher the market risk or return before IPO, the higher the IPO initial returns and aftermarket risk.
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Cox, Justin S. "Pre-IPO cash flow volatility and aftermarket valuation." Managerial Finance 46, no. 1 (November 29, 2019): 159–76. http://dx.doi.org/10.1108/mf-06-2019-0288.
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Purpose The purpose of this paper is to examine how pre-IPO cash flow and earnings volatility influence both post-IPO pricing and valuation. This paper provides an empirical extension of Pástor and Veronesi’s (2003, 2005) argument that uncertainty surrounding a private firm’s expected profitability can impact how the firm is valued in the IPO aftermarket. Design/methodology/approach This paper includes a sample of 695 IPOs between 1996 and 2011. Pre-IPO financial statement data are hand collected from the EDGAR database. Pre-IPO cash flow and earnings volatility is computed using the standard deviation of the firm’s three years of cash flows and earnings prior to the IPO. Tobin’s Q serves as a measure of post-IPO firm valuation. This paper includes two subsamples to account for the “hot” IPO market of the late 1990s. Findings Firms with higher pre-IPO cash flow volatility are associated with higher post-IPO aftermarket valuations. This result holds for both the “hot” IPO and the later sub-sample. Pre-IPO earnings volatility does not influence aftermarket valuations, suggesting that only the uncertainty surrounding cash flows serves as a salient measure to IPO investors. Finally, IPO underpricing is associated with pre-IPO cash flow volatility, suggesting another channel in which IPO pricing is influenced. Research limitations/implications The hand collection for this paper is laborious and is limited to yearly cash flow and earnings numbers. The paper documents that quarterly and yearly cash flow and earnings volatility measures are highly correlated for the select stocks that allow for such testing. Further, a broader sample that accounts for more international IPO issues might corroborate the findings in this paper. Practical implications This study shows that investors both initially price and value IPO firms base on their pre-IPO cash flow volatility. Originality/value This is the first paper to examine the direct link between pre-IPO cash flow and earnings volatility on IPO aftermarket valuation and IPO pricing.
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Chen, Xinyuan, Jun Huang, Xu Li, and Tianshu Zhang. "Corporate Governance and Resource Allocation Efficiency: Evidence from IPO Regulation in China." Journal of International Accounting Research 17, no. 3 (March 1, 2018): 43–67. http://dx.doi.org/10.2308/jiar-52104.
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ABSTRACT As a requisite to issuing initial public offerings (IPOs), Chinese companies must obtain approval from the China Securities Regulatory Commission (CSRC). Using a sample of Chinese firms that applied for IPOs between 2006 and 2011, we examine the influence of corporate governance on the IPO application process and firms' post-IPO performance. We find that firms with more outside directors, smaller boards, and more balanced ownership among large shareholders are more likely to pass the IPO screening. Along similar lines, controlling shareholder ownership is negatively related to the success of IPO screening. Further analyses show that effective corporate governance plays a more important role when firms engage in more complex operations, and it plays a less important role when firms are politically connected. Finally, we find that firms with better corporate governance enjoy better post-IPO performance, indicating that resource allocation is more efficient when the CSRC values firms' corporate governance. JEL Classifications: G02; G14; M14.
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Alhadab, Mohammad M. "Real and Accrual Earnings Management around Initial Public Offerings in Jordan." International Business Research 11, no. 1 (December 27, 2017): 204. http://dx.doi.org/10.5539/ibr.v11n1p204.
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This study examines whether Initial Public Offering (IPO) firms in Jordan utilize real activities and accruals accounting during the offering year to manipulate income. To date the current study is the first to examine real activities and accrual earnings management that undertaken by IPO firms in Jordan. Using a Jordanian sample of 41 IPO firms over the period between 2000 and 2011, this study provides new evidence to the literature that IPO firms in Jordan utilize real activities and accruals accounting to inflate net income that is reported during the offering year. In particular, the findings of current study show that IPO firms report a higher level of earnings manipulation during the offering year that conducted via accrual-based earnings management, sales-based, discretionary expenses-based, and the aggregated measure-based of real activities.
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Purayil, Priyesh Valiya, and Jijo Lukose P.J. "Ownership dilution and earnings management: evidence from Indian IPOs." Managerial Finance 46, no. 3 (November 26, 2019): 344–59. http://dx.doi.org/10.1108/mf-02-2019-0068.
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Purpose Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined the real motives behind newly public firms’ earnings management. The purpose of this paper is to examine the impact of ownership dilution on earnings management among IPO firms. The authors chose the setting of security offerings in an emerging market, which is characterised by unique ownership structure, to examine the possible incentive of owners or pre-IPO shareholders to engage in earnings management. Design/methodology/approach The study employs accrual and real transactions measures to check the presence of earnings management among 409 IPO firms from India during the period 2000‒2018. Subsequently, using ordinary least squares regression models with heteroscedasticity-robust standard errors, this paper examines the relationship between earnings management and selling or dilution incentives of pre-IPO shareholders. Findings The study finds that the degree of earnings manipulation by issuer firms is positively associated with the ownership dilution at the time of IPO as well as around lockup expiration. Practical implications The findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is linked to the ownership dilution of pre-IPO shareholders. Originality/value The paper contributes to the limited stream of research that investigates the motives of earnings management among IPO firms. It empirically establishes an association between the selling incentive of pre-IPO shareholders and earnings management.
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Balapur, Ashish, and Mary Jessica. "IPO FIRMS SUBSEQUENT ACQUISITION ACTIVITY AND IPO UNDERPERFORMANCE." International Journal of Economics and Financial Issues 9, no. 6 (October 1, 2019): 29–32. http://dx.doi.org/10.32479/ijefi.8004.
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Gumanti, Tatang Ary, Ari Sita Nastiti, and Ayu Retsi Lestari. "Good corporate governance and earnings management in Indonesian initial public offerings." Corporate Ownership and Control 13, no. 4 (2016): 558–65. http://dx.doi.org/10.22495/cocv13i4c4p5.
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This study investigates the relationship between corporate governance mechanisms and earnings management (as measured by discretionary current accruals) for Indonesian IPO firms. Previous studies have mainly focused on an examination of the effect of corporate governance on the earnings management of publicly traded firms, whilst this study examines newly listed firms. It employs a modified Jones model to measure earnings management as developed by Tykvova (2006). The hypothesis predicts that Indonesian IPO firms with good corporate governance will engage in less earnings management in the periods prior to the IPO year. The sample consists of 75 IPOs and the results show that the proportion of board of commissioners, public ownership, institutional ownership and managerial ownership constrain the extent of earnings management of IPO firms. This study contributes to the literature in showing that corporate governance mechanism is an important determinant in earnings management practices for Indonesian IPO firms.
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Hossain, Md Sajib, and Muhammad Saifuddin Khan. "POST‐IPO OPERATING PERFORMANCE IN BANGLADESH." International Journal of Accounting & Finance Review 7, no. 1 (May 29, 2021): 1–16. http://dx.doi.org/10.46281/ijafr.v7i1.1149.
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This study attempts to investigate the change in the operating performance of firms as they go from private to public ownership. Using the data of all the non-financial firms, which floated initial public offerings (IPOs) from 2008 to 2015, this study finds that there is a significant decline in operating performance as measured by ROA, asset turnover, ROS, and OCFTA after the IPO and the decline continues for next two to three years with the highest deterioration of operating performance being observed in the immediate next year of IPO. Moreover, when the study uses age, debt ratio, sales, capital expenditure, and IPO event to explain the variation of the operating performance of IPO firms over time, it finds that IPO event negatively affects all measures of operating performance. Finally, the study finds that deterioration of the post-IPO operating performance is more pronounced for firms offering their securities with premium than firms offering securities without premium.
JEL Classification Codes: G11, G12, G32.
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Ivanov, Stoyu I. "The performance of IPOs excluding the jump." Studies in Economics and Finance 35, no. 2 (June 4, 2018): 273–86. http://dx.doi.org/10.1108/sef-11-2016-0264.
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PurposeThis paper aims to examine performance of firms with a negative second-day return after the Initial Public Offering (IPO) relative to stocks with a positive second-day return after the IPO. Loughran and Ritter (1995) document that firms which have done an IPO or an SEO underperform similar firms over three- and five-year investment horizons. Loughran and Ritter (2002) also document that firms that go public “leave money on the table”, with this amount being almost twice as large as the fees paid to the investment banks.Design/methodology/approachThe study’s null hypothesis is that stocks with a negative return on the second day of the IPO perform better than firms with a positive return on the second day of the IPO. The authors estimate the second-day return based on first- and second-day closing prices from the Center for Research in Security Prices, and they use a regression model and Jensen’s alpha to test the hypothesis.FindingsThe authors find evidence that rejects the paper’s working null hypothesis of superior performance of negative second-day return IPO firms relative to positive second-day return IPO firms in the three-year and five-year period samples. They fail to find statistically significant evidence in the entire period samples which suggest that negative second-day return IPO firms perform similarly to positive second-day return IPO firms.Originality/valueThe findings in this study raise interesting questions with regards to the ideas developed by Loughran and Ritter (2002) and the “money left on the table”. These findings are of interest to both entrepreneurs and investment bankers who advise them during the underwriting process. If there is not a benefit in terms of IPO performance to investors, then the question becomes – shouldn’t owners possibly consider actually “taking money from the table”. After all, the return to investors will be the same either way but if entrepreneurs make more money at IPO they would be motivated to start more companies in the future.
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Alidarous, Manal, and Fouad Jamaani. "The Concurrent Effects of IFRS Mandate and Formal Institutional Quality on the Aftermarket Performance of IPO Firms in Emerging Countries." International Journal of Financial Research 12, no. 3 (January 11, 2021): 320. http://dx.doi.org/10.5430/ijfr.v12n3p320.
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This paper provides the first empirical investigation seeking to find whether International Financial Reporting Standards (IFRS) mandate, changes in the quality of formal institutions, or, the concurrent effect of these two elements can explain the ongoing phenomenon of the aftermarket performance difference of Initial Public Offerings (IPO) firms. We perceive little awareness of the concurrent effect of IFRS mandate and the quality of formal institutions in emerging countries, although these nations account for more than half of the IFRS mandating countries. We employ numerous Difference-in-Differences (DiD) models utilizing reliable IPO and formal institutional data for Saudi Arabia from 2005 to 2017. Our empirical results show that the absence of IFRS influence in the aftermarket performance of IPO firms led us to posit that the quality of formal institutions is the key player in influencing long-term performance of IPO firms in Saudi Arabia. We uncover evidence showing that an improvement in formal institutional quality increases the long-term performance of IPO firms. We find no evidence of a concurrent effect of changes in formal institutional quality and IFRS mandate on the aftermarket performance of IPO firms. Our results show that what does really matter in relation to the aftermarket performance of IPO firms in Saudi Arabia, are the enhancements in the level of formal institutional quality. Our results provide some important implications for IFRS-IPO research.
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Davidson III, Wallace N., Amani Khaled Bouresli, and Manohar Singh. "Agency costs, ownership structure, and corporate governance in pre-and post-IPO firms." Corporate Ownership and Control 3, no. 3 (2006): 88–95. http://dx.doi.org/10.22495/cocv3i3p7.
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Following the approach in Ang, Cole, and Lin (2000), we estimate the impact of CEO ownership on agency costs in pre-IPO firms and again in the post-IPO period when they have become publicly traded companies. We find that CEO ownership is large in both the pre and post-IPO firms. Greater CEO ownership is associated with lower agency costs both before and after the IPO, and CEO ownership in these firms seems to dominate all other agency control mechanisms. Board composition and involvement by venture capital firms does not appear to mitigate agency costs.
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JOHNSON, WILLIAM C., and JEFFREY E. SOHL. "INITIAL PUBLIC OFFERINGS AND PRE-IPO SHAREHOLDERS: ANGELS VERSUS VENTURE CAPITALISTS." Journal of Developmental Entrepreneurship 17, no. 04 (December 2012): 1250022. http://dx.doi.org/10.1142/s1084946712500227.
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At the time of an initial public offering, shares in a firm are typically held by venture capitalists, insiders, corporate investors and angel investors. We examine the role of angel investors in the IPO process. We find that angel investors provide equity capital in industries venture capitalists are less likely to serve and that shareholders in angel backed IPO firms are more likely to sell their shares at the time of the offering. Where venture capital backed IPO firms have higher underpricing, angel backed IPO firms do not, implying that angels may be the preferred investors for early-stage firms.
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Hairston, Stephanie A., Ji Yu, and Zenghui Liu. "Does Manager Ability Influence Prospectus Earnings Quality and IPO Underpricing?" Accounting and Finance Research 8, no. 1 (December 4, 2018): 1. http://dx.doi.org/10.5430/afr.v8n1p1.
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Prior literature suggests that manager ability influences several factors, including financial reporting quality, key to the bargaining power of an issuing firm during their initial public offering (IPO). However, we also know that high ability managers are better able to engage in and conceal opportunistic behavior which may dampen any positive effects their abilities have in the IPO process. Given the conflicting affect that managerial ability may have on financial reporting and firm performance in the IPO setting, we examine the impact of manager ability on prospectus earnings quality and IPO underpricing. We find that IPO firms with high ability managers tend to have better earnings quality and are less underpriced than firms with low ability managers. We also find preliminary evidence that equity ownership strengthens the relationship between manager ability and IPO underpricing. Our findings are consistent with the streams of literature suggesting that better managers produce higher quality earnings and raise more capital during the IPO to invest in future growth opportunities if they are closely monitored. These findings should be useful to issuing firms considering hiring high caliber managers, investors in evaluating IPO firms, and researchers in examining the influence of human capital on IPO underpricing.
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Ngoc An, Le Thuy, Yoshiyuki Matsuura, Norliza Che Yahya, and Nguyen Huu Phuc. "Patent Signals of IPO Performance: Evidence from High- and Low-Tech Industries in Japan." Asian Journal of Technology Management (AJTM) 15, no. 1 (2022): 21–39. http://dx.doi.org/10.12695/ajtm.2022.15.1.2.
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Abstract: Prior studies pointed to evidence that startups and venture capital (VC) companies tended to use different measures to provide signals to outsiders. This study adds to those previous insights by focusing on established firms’ patenting behaviors and their effect on the amount of money raised at the initial public offering (IPO). Since technology intensity may differ considerably between high and low-tech companies, our main interest in this paper lies on whether the significance of pre-IPO patenting activities as a predictor of IPO performance also varies between these two industry categories. Using cross-sectional data representing 308 Japanese industrial firms’ IPO commitments between 2000 and 2015, we find a robust positive correlation between patent applications and IPO performance. Contrary to the conventional wisdom proposing that high-tech firms with more patenting activities achieve better IPO performance, we show that the signaling power of patenting is stronger for the low-tech companies in our sample: While the high-tech firms do not seem to have significantly benefited from a patent signal, the low-tech firms seem to have attracted external investors more easily due to patenting at the IPO. Keywords: Patent, signal, initial public offering (IPO), high-tech industries, low-tech industries
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Chipeta, C. "Post IPO dynamics of capital structure on the Johannesburg Stock Exchange." South African Journal of Business Management 47, no. 2 (June 30, 2016): 23–31. http://dx.doi.org/10.4102/sajbm.v47i2.57.
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This paper examines the dynamics of capital structure for firms engaging in initial public offerings (IPOs) on the Johannesburg Stock Exchange (JSE). Censored Tobit regressions are used to model capital structure targeting behaviour. The findings suggest evidence of targeting behaviour consistent with the static trade off theory of capital structure. On average, IPO firms adjust towards the capital structure target at a faster pace than seasoned firms; IPO firms take, on average, 0.77 years to cover half the financing gap, whereas seasoned firms take an average of 2.65 years. In the first year following the IPO, hot market IPOs significantly reduce their total debt, while cold market IPOs increase the total debt significantly. In terms of the total debt ratio, hot market IPOs adjust at a marginally faster pace than cold market IPOs. However, the opposite is true when the long term debt ratio is considered. In addition, hot market IPOs adjust faster than cold market IPOs in the first year following the IPO. The average first year adjustment speed of hot market IPO firms is 45.61 percent higher than the speed of adjustment for the average cold market IPO firm.
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Artiach, Tracy C., Gerry Gallery, and Kimberley J. Pick. "A chronological review of the Australian litigation risk environment surrounding IPO earnings forecasts." Pacific Accounting Review 30, no. 2 (April 3, 2018): 168–86. http://dx.doi.org/10.1108/par-11-2016-0105.
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Purpose This paper aims to provide a chronological review of changes in the institutional setting regulating Australian initial public offering (IPO) firms’ earnings forecasts over the period from 1994 to 2012. The changing forecasting environment covers both IPO firms’ prospectus earnings forecasts and post-listing updates to those forecasts. Design/methodology/approach This historical analysis reviews the changes in corporate regulation and enforcement, Australian Securities Exchange listing requirements and the outcomes of securities class actions (SCA) that affect IPO firms’ earnings forecasts. Findings A review of the institutional setting regulating Australian IPO firms’ earnings forecasts reveals two inter-temporal shifts in (increasing) litigation risk over 1994-2012 period which have arisen from more onerous regulations, stronger regulatory enforcement and a more active SCA market. The authors document the corporate responses to those shifts. Originality/value This is the first study to comprehensively document research of an inter-temporal litigation risk shift on IPO firms’ earnings forecasting behaviour. It therefore provides a formative base and a useful resource for researchers, practitioners and investigators (regulators, forensic accountants, etc.) when examining the impact of the changes on IPO firms’ forecasting behaviour following regulatory change and enforcement.
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Setia-Atmaja, Lukas, and Yane Chandera. "Impact of family ownership, management, and generations on IPO underpricing and long-run performance." Investment Management and Financial Innovations 18, no. 4 (December 1, 2021): 266–79. http://dx.doi.org/10.21511/imfi.18(4).2021.23.
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This paper examines the impact of family ownership, management, and generations on IPO underpricing and the long-run performance of publicly listed firms in Indonesia from 2004 to 2015. This study is based on agency theory, which discusses the relationship between shareholders and management, as well as controlling and non-controlling shareholders. Study results show that IPO underpricing was 28% higher for family firms than non-family firms. Among family firms, a family member’s presence as a Chief Executive Officer (CEO) significantly reduced the level of IPO underpricing. A negative relationship between family CEO and IPO underpricing was only observed if a CEO at the time of IPO was the founder instead of family descendants. A long-run return of family-firm IPOs was more likely to underperform their non-family-firm counterparts. The findings in the primary market suggest that investors predict bigger issues of agency conflicts between controlling and non-controlling shareholders in family firms than the issues of agency conflicts between shareholders and management in non-family firms. Since investors consider family-firm IPOs to be riskier than non-family firms, they demand a higher level of IPO underpricing to compensate for such risks. The results in the secondary market confirm the findings in the primary market.
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Long, Hai, Xiaochen Lin, and Yu Chen. "Why the Operating Performance of Post-IPO Firms Decreases: Evidence from China." Journal of Risk and Financial Management 14, no. 9 (September 5, 2021): 424. http://dx.doi.org/10.3390/jrfm14090424.
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Based on a database of 200 listed firms from the Growth Enterprise Market of China, this paper employs regression models to investigate the significance of IPO capital expenditure to firms’ operating performance. It suggests that a vast majority of pre-IPO money is spent on business development to promote operating performance in order to meet IPO requirements. After the IPO, most of the money is transferred to equity investments in order to increase the firms’ market value quickly, which leads to operating performance decline and deterioration.
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Alhadab, Mohammad. "IPO underpricing and audit quality: Evidence from the alternative investment market in the UK." Corporate Board role duties and composition 12, no. 2 (2016): 104–10. http://dx.doi.org/10.22495/cbv12i2c1art5.
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This paper aims to investigate the relationship between audit quality and IPO underpricing for IPO firms that went public on the Alternative Investment Market (AIM) of the London Stock Exchange in the UK. Prior research has examined this relationship; however, there has been no work investigates this relation for IPO firms that went public on the AIM market. Based on a sample of 413 IPOs, the findings of the current study reassure prior literature that high quality auditors are associated with a lower level of IPO underpricing. The findings show that high quality audit firms help to reduce the level of information asymmetry around the IPO and, therefore, this leads to reduce the level of IPO underpricing. Further, size, liquidity ratio, and high litigation industries are found to contribute the IPO underpricing on the AIM market.
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Lee, Youngjoo. "The Impact of Corporate Governance Mechanisms on the Commitment of Managers in an IPO Setting: Evidence from Korean Small and Venture Firms." Sustainability 14, no. 2 (January 10, 2022): 730. http://dx.doi.org/10.3390/su14020730.
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Managers’ commitment and dedication crucially affect the sustainable growth of firms. When private companies first offer their shares to the public in an initial public offering (IPO), an IPO lockup is one way of revealing managers’ commitments. IPO lockups are agreements that promise not to sell the shares retained by pre-IPO shareholders for a specified period in the market after the IPO. This paper investigates the impact of corporate governance mechanisms on the length of the lockup period. The paper’s sample consists of IPO firms that have gone public in Korea’s KOSDAQ market, which is a listing venue for small and venture companies. The major findings of this paper are as follows: first, the length of the lockup period increases with the number of outside directors and, second, IPO firms with audit committees have longer lockup periods than those without them. These results indicate that managers of firms with greater board independence choose a longer lockup period when going public. This paper also finds that the lockup period is positively related to the presence of venture capitalists serving as directors of IPO firms, which suggests that venture capital directors may ensure that managers have longer lockups. Overall, these findings suggest that, when small and venture companies go public, managers may use the IPO lockup as a commitment device that complements corporate governance mechanisms in reducing investor concern about the moral hazard problem of managers.
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Basu, Sudipta, Jagan Krishnan, Jong Eun Lee, and Yinqi Zhang. "Economic Determinants and Consequences of the Proactive Disclosure of Internal Control Weaknesses and Remediation Progress in IPOs." AUDITING: A Journal of Practice & Theory 37, no. 4 (July 1, 2017): 1–24. http://dx.doi.org/10.2308/ajpt-51876.
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SUMMARY This study investigates (1) why some IPO firms proactively disclose internal control weaknesses (ICWs) and remediation progress in their prospectuses before going public, despite being exempt from the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act at the time of IPO, and (2) the association of such disclosures with IPO underpricing (i.e., the first-day return). We find that IPO firms that proactively disclose ICWs and remediation progress have higher litigation risk, are audited by industry specialist auditors, and are more likely to have audit committees prior to the IPO, compared with firms that do not disclose such information, after controlling for the ex ante probability of having ICWs. IPO underpricing is lower for firms that disclose ICWs and remediation progress, consistent with the conjecture that the disclosure of ICWs and remediation progress signals extensive premarket due diligence, thus reducing the information asymmetry between informed and uninformed investors. JEL Classifications: G24; K22; M13; M41; M42; M49.
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Dobridge, Christine, Rebecca Lester, and Andrew Whitten. "IPOs and Corporate Taxes." Finance and Economics Discussion Series 2021, no. 058 (September 7, 2021): 1–75. http://dx.doi.org/10.17016/feds.2021.058.
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How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.
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Firth, Michael, Yue Li, and Steven Shuye Wang. "Valuing IPOs Using Price-Earnings Multiples Disclosed by IPO Firms in an Emerging Capital Market." Review of Pacific Basin Financial Markets and Policies 11, no. 03 (September 2008): 429–63. http://dx.doi.org/10.1142/s0219091508001428.
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Existing studies show that markets use comparable firm multiples to price IPOs. This study explores IPO valuations in an emerging market where reliable comparable price multiples may not be readily available, or cannot be reliably identified. In particular, we examine the value relevance of price-earnings multiples disclosed by managers in IPO prospectuses in China. Using a sample of IPOs from 1992 to 2002, we find that price-earnings multiples disclosed by IPO firms provide significant power in explaining price formation in this emerging market. We also find that price-earnings multiples disclosed by IPO firms after 1999, when the China Securities and Regulatory Commission relaxed its internal guideline for approving IPO applications, are more informative. The results are robust to a variety of empirical model specifications. This study contributes to the existing IPO literature by showing that the disclosure of price-earnings multiples provides a mechanism for IPO firms to convey information about IPO firm quality when reliable comparable firm multiples may not exist.
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Rafique, Amir, Muhammad Umer Quddoos, Irfan Khadim, and Muhammad Tariq. "Financial and Operating Performance of Initial Public Offerings in Pakistan." iRASD Journal of Economics 2, no. 1 (June 30, 2020): 35–42. http://dx.doi.org/10.52131/joe.2020.0101.0014.
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This study examines the relationship between prior IPO demands and post-IPO financial and operating performance of firms listed in the Pakistan Stock Exchange. A sample of 51 listed firms, covering a period of ten years, is examined. Predominantly, the investors' demand has been analyzed from two perspectives including oversubscription (a high demand from investors as compared to shares offered by firms) and under subscription (a low demand from investors as compared to shares offered by the firm). Multiple regression analysis has been applied, where the findings revealed that investors demand IPO bring no significant change in the financial and operating performance of IPO firms. Moreover, the analysis reveals that firm size, issue size, and leverage bring no notable change in the operating performance of IPO firms. The findings are important for the investors, portfolio managers, and underwriters.
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Hua, Wei. "Is IPO Underpricing a Corporate Strategy?" Journal of Contemporary Research in Business, Economics and Finance 4, no. 4 (November 25, 2022): 65–77. http://dx.doi.org/10.55214/jcrbef.v4i4.190.
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To determine whether Initial Public Offering (IPO) underpricing is a corporate strategy and could improve a firm’s long-run performance, I investigate whether IPO underpricing could promote or impede a firm’s innovation productivity. I use the firms listed in China’s Growth Enterprise Market (GEM) during the period from October 2009 to February 2017. The results of Ordinary Least Sqaure (OLS) show that underpricing is negatively related to innovation productivity, measured as the number of patents. It suggests that managers or underwriters only care about the immediate return and capital accumulation from IPO, rather than a firm’s future growth. Managerial myopia is detrimental to a firm’s long-term survival and development. Difference-in-Difference (DiD) methodology further establishes causality between underpricing and the number of patents, which compares the difference in the number of patents between the three-year window before IPO and after IPO.This probably suggests that IPO underpricing is not an active strategy to target long-term survival and growth. Industry and IPO suspension are also included to solve the effect from unobservable shock on the firm’s innovative capability. My future study could expand to discuss the channel through IPO affect the firm’s innovation productivity.
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Muzatko, Steven R., Karla M. Johnstone, Brian W. Mayhew, and Larry E. Rittenberg. "An Empirical Investigation of IPO Underpricing and the Change to the LLP Organization of Audit Firms." AUDITING: A Journal of Practice & Theory 23, no. 1 (March 1, 2004): 53–67. http://dx.doi.org/10.2308/aud.2004.23.1.53.
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This paper examines the relationship between the 1994 change in audit firm legal structure from general partnerships to limited liability partnerships (LLPs) on underpricing in the initial public offering (IPO) market. The change in legal structure of audit firms reduces an audit firm's wealth at risk from litigation damages and reduces the incentives for intrafirm monitoring by partners within an audit firm. Prior research suggests that underpricing protects underwriters from litigation damages, and that the level of underpricing varies inversely with both the amount of implicit insurance provided by the audit firm and the quality of the audit services provided. We hypothesize the change in audit firm legal structure reduced the assets available from audit firms in IPO-related litigation and indirectly reduced audit quality by lowering intrafirm monitoring. As a result, underwriters have incentives as a joint and several defendant with the audit firms to increase IPO underpricing, particularly for high-litigation-risk IPOs, following audit firms' shifts to LLP status. Our findings are consistent with this hypothesis.
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Kalgo, Sani Hussaini, Hairul Suhaimi Nahar, and Bany Ariffin Amin Noordin. "The impact of initial public offering (IPO) attributes, firm-level characteristics and ownership on Malaysian IPO firms’ earnings management." Asian Academy of Management Journal of Accounting and Finance 18, no. 1 (July 29, 2022): 235–62. http://dx.doi.org/10.21315/aamjaf2022.18.1.10.
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The paper investigates Malaysian Initial Public Offering (IPO) firms’ financial reporting behaviour from the specific perspective of their earnings management (EM) practices covering both real (REM) and accrual (AEM) techniques. It further examines the impact of unique IPO attributes, firm level characteristics and ownership structure on both EM practices contemporaneously. Using the established and commonly used EM models to measure both AEM and REM for IPO firms from 2002 to 2013, the results indicate that IPO firms engage in both EM strategies around the corporate event. It also shows that such strategies are not just opportunistically motivated but attributable to several unique IPO attributes, firm level characteristics and ownership variables. The paper adds to the existing body of knowledge on IPO in the specific emerging country context of Malaysia which evidence from prior studies are observably scant.
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Amin, Muhammad, Jianfeng Wu, and Rungting Tu. "Signaling value of top management team." Chinese Management Studies 13, no. 3 (August 5, 2019): 531–49. http://dx.doi.org/10.1108/cms-04-2017-0097.
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Purpose The purpose of this paper is to integrate the upper echelon theory with signaling theory and examine the impact of top management team (TMT) on the initial public offering (IPO) performance of Chinese firms in the USA. Design/methodology/approach This study used Security Data Corporation (SDC) that is a central database for foreign IPOs in the USA. The authors identified 142 Chinese firms that issued stocks on the US markets between 2003 and 2014. This study used firm’s final prospectuses to collect data manually. Findings This study finds that the TMT characteristics such as functional heterogeneity and international exposure convey the positive signal of firm’s legitimacy to the US investors and increase the IPO performance. Originality/value This study extends the upper echelon perspective that has previously overlooked the signaling value of TMT characteristics in the foreign IPO studies. The top management plays an important role to the firm’s successful foreign market listing. Since China joined the WTO in 2001, a large number of Chinese firms have started IPOs in the USA, but there is a dearth of research on these firms. This study aims to contribute to the study of international business and management and describes that the TMT functional heterogeneity and international exposure have a significant role in the success of Chinese foreign IPOs.