Narrow Results

Effective information disclosure is the cornerstone of sustainable operation of the capital market. In the IPO market, whether public information in the prospectus can be fully captured by investors largely depends on the quality of valuation-relevant information. Based on Chinese prospectuses, we create five unique indicators to measure the information quality and examine the relationship between information quality and IPO underpricing. We find that high quality of information disclosure results in less underpricing because they relieve serious information asymmetry between issuing companies and investors. We provide a new method to supervise and improve the quality of non-financial information disclosure.

Most Korean IPOs show significant initial underpricing which accounts for high initial returns. Our study explores the institutional and regulatory factors that have affected both the offering and after-market pricing mechanisms to test several hypotheses that might explain this underpricing in the Korean IPO market. We find a systematic difference in the initial stock price performance of new issues in an environment where firms have different motives for going public. We also find that in less regulated periods, the explanatory power of the variables relating to both the signaling and ex ante uncertainty hypotheses increase.

Korean and US IPO markets show significant initial underpricing, accounting for dramatic initial price increases. However, unlike its US counterpart, the Korean IPO market shows considerable market adjusted long-run returns. Hypotheses influenced by Korean institutional and regulatory factors, tested to explain the IPO cumulative returns, suggest that some of the theoretical arguments and empirical regularities observed in the US IPO market also apply to the Korean IPO market. However, this is a function of the regulatory environment in the four periods investigated in this study.

The main purpose of this paper is to study the empirical determinants of the underpricing of H-share initial public offerings (IPOs) during the 1993–2003 period. A special characteristic of H-shares is that they are shares of companies incorporated in China, but are also listed abroad. Our estimates indicate that the average IPO underpricing level of H-shares was about 16.8%. We find that the conventional explanations for the worldwide IPO underpricing are not adequate in explaining the underpricing level of H-shares. Some new factors that are important in explaining the underpricing phenomenon in H-shares are identified. We show that the degree of IPO underpricing is positively associated with market conditions prior to issuance. It is also negatively related to the range of the issuing prices as well as to the growth rate of historical profits. In addition, it is found that firms cross-listed in Hong Kong and America have higher underpricing levels.

Most Initial Public Offerings (IPOs) feature share lockup agreements, which prohibit insiders and other pre-IPO shareholders from selling their shares for a specified period of time following IPO. We explore possible reasons why some IPO firms voluntarily agree to have a much longer lockup period than other firms. We find evidence that lockup agreements are used to control agency costs. Longer lockups are significantly related to inferior long-run returns and this relationship is stronger for firms that have less reputable underwriters. We find no evidence that lockup agreements are used to signal firm quality and we are unable to relate firm quality, as measured by long-run returns, to information asymmetry variables.

In this paper, we examine how analysts react to IPO percentage offering size. We find that analysts predict lower long-term earnings growth rates for IPOs with larger percentage offering size. The sizes of both primary and secondary offering are negatively related to long-term growth rate forecasts. We find evidence that the free cash flow effect may be related to the negative relation between primary offering size and growth forecast.

The aim of this study is to investigate whether the adoption of convergent-International Financial Reporting Standards (IFRS) in China affects the audit fees of initial public offerings (IPO) firms. An empirical regression analysis using panel data for 1,094 nonfinancial IPOs (excluding season equity offers) of A-shares listed on the Shanghai and Shenzhen Stock Exchanges between 2003 and 2012 is adopted. The results reveal that audit fees increase following convergent-IFRS adoption in China and additionally suggest that convergent-IFRS adoption eases the intense price competition that previously existed in China’s audit market and thus has important policy implications for regulators. To the best of the authors’ knowledge, this study represents the first reported attempt to adopt the IPO setting to examine the effects of convergent-IFRS adoption on audit fees and fills the gap in literature. Using a setting of IPOs enables this paper to further exclude the influence of quasi-rents derived from low-balling after initial audit engagement when testing audit fees.

This paper examines the impact of the recently passed Jumpstart Our Business Startups (JOBS) Act on the behavior of market participants. Using the JOBS Act — which relaxed mandatory information disclosure requirements — as a natural experiment on firms’ choices of the mix of hard, accounting information and textual disclosures, we find that relative to a peer group of firms, initial public offering (IPO) firms reduce accounting disclosures and change textual disclosures. Because it allows a partial revelation of IPO quality, only textual disclosures affect underpricing. We also find that the Securities and Exchange Commission (SEC) changes its behavior post-JOBS Act in responding to draft registration statements. Specifically, the SEC’s comment letters to firms are more negative in tone, and more forceful in their recommendations, focusing on quantitative information. Finally, under the JOBS Act, investors place more emphasis on the information produced by the SEC when pricing the stock. Returns following public release of the letters vary by about 4% based on letter tone.

This chapter analyzes stock return behavior following initial public offering (IPO) events in the pharmaceutical sector and examines factors that could have an impact on this behavior.

The results of the research indicate a positive Cumulative Average Abnormal Return (CAAR) of 3.03% in the 20 days following the IPO until the end of the quiet period for all firms under examination, and a decline of tens of percent in the 18 months post-IPO. When the sample is divided into two subsamples according to firm size, a market value (MV) of US$500 million can be identified as a threshold for positive or negative post-IPO yields. Companies with an MV below this threshold experience a positive but not significant CAAR in the first 20 days post-IPO and a significant negative CAAR from day 31 onwards. In contrast, companies above this US$500 million threshold show a significant positive CAAR 20 days post-IPO, followed by a consistent increase in CAAR for the next few months. The results also indicate that MV, IPO proceeds, shareholder dilution and clinical phases are critical factors determining post-IPO returns. In conclusion, we suggest that investors recognize a US$500 million market value of a firm as a confidence threshold when investing in newly issued pharmaceutical companies. We postulate that firms valued above this amount attract more attention and gain greater investor confidence than do firms below this threshold. Lower-valued firms shares can be considered “lottery stocks,” as their IPO ignites a period of enthusiasm until the quiet period ends, where after investors’ attention to such firms gradually diminishes, and their focus moves on to their next potential lottery-like opportunity.

Earlier studies document positive first-day return for initial public offerings (IPOs), commonly interpreted as underpricing of the issue. The empirical evidence also indicates that IPO underpricing is negatively related to the public float (the fraction of the firm sold to the public). One possible explanation for this relation is that firms allocate a fixed amount of money for underpricing, and set an issue price accordingly — a behavioral characteristic. But, if indeed firms allocate a fixed amount of money to underpricing, then this underpricing should diminish in the public float. Using a sample of IPOs between 1996 and 2008, we provide empirical evidence that indeed the relation between underpricing and the public float is non-linear. Specifically, the higher the public float, the less the decrease of underpricing in the public float. Moreover, in our regression analysis, regressing underpricing on the reciprocal of the public float provides the best fit. As we show, this result is consistent with firms allocating a fixed amount of money for underpricing. This finding is important because it helps predict underpricing and has implications for firms, investors and regulators.