Are Real Estate IPOs a Different Species? Evidence from Hong Kong IPOs

It is well documented that in the United States, real estate investment trust (REIT) initial public offerings (IPOs) have an abnormally low initial-day return when compared to that of industrial firm IPOs. Researchers suspect that the abnormal return pattern of REIT IPOs is caused by their unique real estate holdings. Examination of 399 IPOs issued in Hong Kong during the 1986-1997 period reveals strong evidence that suggests that underlying real estate holdings cannot be the sole reason for the observed low initial-day return of REIT IPOs. This investigation indicates that there is a need to re-think the current explanations for the abnormal performance of REIT IPOs.

The pricing of infrastructure initial public offerings : evidence from Australia

This paper explores first-day returns on infrastructure entity initial public offerings (IPOs) in Australia from 1996 to 2007. While a good deal has been written on the first-day returns of industrial and mining company IPOs and Real Estate Investment Trust IPOs, first-day returns of infrastructure entity IPOs have yet to be reported in the literature. The study uses ordinary least squares regression analysis to identify factors that might influence the percentage first-day returns theoretically available to investing subscribers and factors that might influence the aggregate amount of money left to subscribers by issuers. The study finds that first-day returns, on average, are not significantly different from zero. There is evidence, however, that suggests higher dividend yields and higher percentage direct costs of capital raising influence these first-day returns. The study also finds that infrastructure entity IPOs that seek to raise more equity capital leave less money on the table for subscribing investors.<br /

Associations between management forecast accuracy and pricing of IPOs in Athens Stock Exchange

This study examines the earnings forecast accuracy of newly listed companies on the Athens Stock Exchange and further investigates the relationship between earnings forecast and pricing of IPOs. It uses a unique dataset of 208 IPOs, which were floated during the period of January 1994 to December 2001 in the Athens Stock Exchange. The results suggest that investors are able to anticipate forecast errors at the time of listing. Pricing of IPOs indicate that firms with negative earnings forecast (pessimistic) are associated with low level of underpricing while optimistic management earning forecast can be a signal for high initial returns. Three variables - age of the IPOs, ownership by insiders and industry classification significantly contribute towards accuracy of earnings forecast

Has there always been underpricing and long-run underperformance? : IPOs in Germany before World War I

This paper provides empirical evidence on initial public offerings (IPOs) by investigating the pricing and long-run performance of IPOs using a unique data set collected on the German capital market before World War I. Our findings indicate that underpricing of IPOs has existed, but has significantly decreased over time in our sample. Employing a mixture of distributions approach we also find evidence of price stabilization of IPOs. Concerning long-run performance, investors who bought their shares in the early after-market and held them for more than three years experienced significantly lower returns than the respective industry as a whole. Earlier versions of this paper were presented at the ABN-AMRO Conference on IPOs in Amsterdam, the Annual Meetings of the European Finance Association, the Annual Meetings of the Verein für Socialpolitik, the IX Tor Vergata International Conference on Banking and Finance in Rome, and at Johann Wolfgang Goethe-University in Frankfurt

Political ties and venture capital : evidence from China : a thesis presented in fulfilment of the requirement for the degree of Doctor of Philosophy in Finance at Massey University, Palmerston North, New Zealand

This thesis investigates whether venture capital firms (VCs) benefit from political ties (PTs), and whether VCs add value to China’s public equity market by constraining earnings management (EM) and improving corporate governance of their backed firms. The first essay examines whether PTs facilitate VCs’ successful exits via either initial public offerings (IPOs) or merger and acquisitions (M&As). Using a sample of 2578 Chinese portfolio firms that received their initial VC funding during 2004-2010, this essay shows that PTs increases the likelihood of VCs’ successful exit through mainland stock markets and M&A markets. It further shows that VCs with management-level PTs enjoy greater success than those with ownership-level PTs, whereas no significant difference between central and local government PTs on VC exits. The second essay examines whether VCs with PTs are better able to constrain opportunistic earnings management (EM) in Chinese IPO markets. It shows that IPOs backed by VCs with ownership-level PTs are more likely to conduct opportunistic IPO-year EM, while those backed by VCs with management-level PTs are associated with lower IPO-year EM. The higher EM in IPOs backed by VCs with ownership-level PTs is mainly driven by VC lock-up sale within six months following VC lock-up expiration, while the lower EM in IPOs backed by VCs with management-level PTs is not significantly associated with VC lock-up sale. Lastly, IPOs subject to immediate exits from VCs with ownership-level PTs exhibit poorer post-issue stock performance, while IPOs backed by VCs with management-level PTs exhibit better post-issue stock performance regardless of VC lock-up sale. The final essay investigates how VCs influence the size and composition of corporate boards. Using hand-collected data from 924 IPO prospectuses, this essay shows that VC-backed IPOs have more independent boards in China. Furthermore, VCs with management-level PTs improve governance by using their networks to recruit specialist independent directors with industry relevant expertise. Lastly, this essay shows that IPOs with more independent boards are not necessarily associated with better performance. However, IPOs backed by VCs with management-level PTs and firms that have a larger percentage of independent directors with industry relevant expertise exhibit higher long-term stock returns

The price of rapid exit in venture capital-backed IPOs

This paper proposes an explanation for two empirical puzzles surrounding initial public offerings (IPOs). Firstly, it is well documented that IPO underpricing increases during “hot issue” periods. Secondly, venture capital (VC) backed IPOs are less underpriced than non-venture capital backed IPOs during normal periods of activity, but the reverse is true during hot issue periods: VC backed IPOs are more underpriced than non-VC backed ones. This paper shows that when IPOs are driven by the initial investor’s desire to exit from an existing investment in order to finance a new venture, both the value of the new venture and the value of the existing firm to be sold in the IPO drive the investor’s choice of price and fraction of shares sold in the IPO. When this is the case, the availability of attractive new ventures increases equilibrium underpricing, which is what we observe during hot issue periods. Moreover, I show that underpricing is affected by the severity of the moral hazard problem between an investor and the firm’s manager. In the presence of a moral hazard problem the degree of equilibrium underpricing is more sensitive to changes in the value of the new venture. This can explain why venture capitalists, who often finance firms with more severe moral hazard problems, underprice IPOs less in normal periods, but underprice more strongly during hot issue periods. Further empirical implications relating the fraction of shares sold and the degree of underpricing are presented

Offer Price, Target Ownership Structure and IPO Performance

Although the choice of an IPO offer price level would seem to have little economic significance, firms do not decide this arbitrarily. Our findings suggest that firms select their IPO offer prices to target a desired ownership structure, which in turn has implications for underpricing and post-IPO performance. Higher priced IPOs are marketed by more reputed underwriters and attract a relatively larger institutional investment. These IPOs are relatively more underpriced, possibly as compensation for the monitoring and information benefits provided by institutional investors. IPOs whose offer prices are below the median level seem to be targeted towards a retail investor clientele. These IPOs are also relatively more underpriced, possibly as a cost of adverse selection. Our finding that long-run performance increases with offer price confirms that higher priced IPOs are better firms.Initial public offerings; share prices; share allocation

IPO Market Cycles: Bubbles or Sequential Learning?

We examine the strong cycles in the number of initial public offerings (IPOs) and in the average initial returns realized by investors who participated in the IPOs. At the aggregate level, initial returns are predictably related to past initial returns and also to future IPO volume from 1960-1997. To understand these patterns, we use firm-level data from 1985-97 to model the initial return. Our results show that aggregate IPO cycles occur because of the time it takes to complete an IPO, the clustering of similar types of IPOs in time, and information spillovers among IPOs.

The Overpricing Problem: Moral Hazard and Franchises

We hypothesize that moral hazard is an important factor in explaining the under performance of firms, identified by Ritter (1991), following initial public offerings (IPOs). We test this hypothesis by comparing post-IPO returns of franchised and non-franchised firms. Franchised IPOs, whose franchise agreements mitigate the moral hazard problems that arise from the dilution of ownership following an IPO, outperform their non-franchised, matched counterpart IPOs over five years in the aftermarket.IPO; moral hazard; overpricing; franchises

Conflict of interest and certification in the U.S. IPO market

We examine the long-run performance and valuation of IPOs underwritten by relationship banks. We find that over one- to three-year horizons these IPOs do not underperform similar stocks managed by independent institutions. Moreover, our analysis suggests that relationship banks avoid potential conflicts of interest by choosing to underwrite their best clients' IPOs. Consistent with this result, we show that investors value new issues managed by relationship banks higher than similar IPOs managed by outside banks. Our findings support the certification role of relationship banks and suggest that the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.Going public (Securities) ; Securities