To Wait or Not to Wait: When Do Announced Initial Public Offerings are Completed? (original) (raw)
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The short-term timing of initial public offerings
Journal of Corporate Finance, 2009
This paper examines the effect of stock market conditions on the waiting time of initial public offering (IPO) candidates, from the date firms file a registration statement with the Securities and Exchange Commission (SEC) to the effective IPO date. I find that issuers are going public faster when time-varying stock market valuations are high, and when time-varying market returns and time-varying market volatility are low. The volatility effect is not driven by regulatory delays consecutive to changes in the terms of the offers during the IPO process. Taken together, these results indicate that firms use a short-term market timing strategy when deciding the right time to go public and are consistent with a real option interpretation of IPO timing.
The Impact of Information Uncertainty and Asymmetry on IPO Underpricing
2000
We employ an option pricing framework to extend the winner's curse model developed by Rock (1986) and Beatty and Ritter (1986). We allow the true IPO value to follow a continuous time process and use an option pricing approach to calculate its offer price. In our framework, the uncertainty of information and the time elapsed between the initial offering and
The Timing of Initial Public Offerings
2003
We study the dynamics of initial public offerings (IPOs) by examining the tradeoff between an entrepreneur's private benefits, which are lost whenever the firm is publicly traded, and the gains from diversification. We characterize the timing dimension of the decision to go public and its impact on firm value and on the evolution of firm risk over time. By endogenizing the timing of the decision to go public, we explain several puzzling phenomenon: the clustering of IPOs and buyouts in time, the industry concentration of IPO waves, the high incidence of re-privatization of recent IPOs, and the long-run under-performance of recently issued stock relative to the shares of longer-listed companies.
Ipo pricing: a maximum likelihood approach
2013
This paper analyses how IPO initial return volatility affects the valuation of firms that go public. The goal is to test whether the initial return volatility for evaluating the pricing of IPOs is relevant on the Spanish capital market, bearing in mind that the degree of ex-ante uncertainty regarding the value of the firm for IPOs in Spain is lower than in other countries, as is the level of underpricing. I also analyse how the main explanations found in the literature for the anomaly of underpricing are affected by this new metric of return volatility. Consistent with IPO theory, both the asymmetry of information hypothesis and the hot IPO market hypothesis are confirmed in this study. The results do not provide conclusive support for the signalling hypothesis for underpricing.
Review of Quantitative Finance and Accounting, 1993
In this paper we generalize Rock's theory regarding the underpricing of IPOs. In Rock's model, informed investors have a firm-specific informational advantage pertaining to a firm's cash flow. We derive the new results that the level of beta and the size of the market risk premium positively affect underpricing. These implications extend the adverse selection theory and further distinguish this theory from the current state of signalling theories of underpricing. The results put the '~hot and cold" issue markets phenomenon in a theoretical context. Empirical results are consistent with the theoretical propositions and provide support for Rock's theory of underpricing.
Initial public offerings: An analysis of theory and practice
The Journal of Finance, 2006
We survey 336 chief financial officers (CFOs) to compare practice to theory in the areas of initial public offering (IPO) motivation, timing, underwriter selection, underpricing, signaling, and the decision to remain private. We find the primary motivation for going public is to facilitate acquisitions. CFOs base IPO timing on overall market conditions, are well informed regarding expected underpricing, and feel underpricing compensates investors for taking risk. The most important positive signal is past historical earnings, followed by underwriter certification. CFOs have divergent opinions about the IPO process depending on firm-specific characteristics. Finally, we find the main reason for remaining private is to preserve decision-making control and ownership.
AN OVERVIEW OF UNDERPRICING OF INITIAL PUBLIC OFFERINGS
isara solutions, 2020
IPO Introduction The idea of a firm's going public and profitability plays the most important role in investment decisions in the field of finance. Consequently, any firm's goal is to retain its core activities and to keep stakeholders successful over time (specifically to shareholders). A growing company requires capital to invest, and it can be created from different sources like the equity, external equity, debt or other types. In addition to shareholders' capital and income, companies typically raise money out of the market by various means, including private sector investment, venture capital, loan and the issuance of debt. Traditional financial sources (owners' equity, debt and retained earnings) are often insufficient to fund an organization because of fast growth or rising costs. Rock (1986) claimed that one of the key reasons for companies behind the public is their risk aversion because risk is only shared by publicly traded companies' owners and financers. One effective way to collect funds is therefore to proceed with initial public offering (IPO). In order to invest in a business, IPOs are most widely used to raise capital from the public to support a new venture and disseminate ownership through securities. Loughran et al (1994) have found three different mechanisms in each country: fixed price deals, books building method, and auctions. Sherman (2005) indicated that book building was a better method than auctioning and therefore less expensive as the underwriter ensured that a minimum of informed investors participated. UNDERPRICING OF IPO The IPO underpricing, simply is, when the listing price is higher, the difference between the closing offer price of an inventory (through IPO) and the closing price of an inventory at the first (listing) day of trade. It gives investors a short-term chance for investment, of course. Therefore, the huge rush of firms into stock exchange listing and IPO fund-generating is marked with an enormous queue of investors awaiting IPO allotments, regulatory framework creation and primary-market investment banking expansion. These specific features have made IPO an interesting financial study case. A business announces the IPO or the offer to issue new equities in the market by presenting information on the company's history, its previous financial results, its purposes and the expectations for the future along with the risk. This risk may be an investment in risky ventures or the non-allocation of shares as a result of oversubscription, and such risks must in some way be covered. It was shown that the majority of IPOs are traded on the listing day at a higher price. The company is now facing a lack of opportunity and could raise more capital by charging higher rates, which it did not actually. It seems that investors vary from other people regarding the company's potential prospects: The company was unfairly priced and deserves a better price. The greater the price, the larger the revenue the organization will produce from the higher price bid, but businesses have lost the money. This incidence is labelled by issuers as "money left on the table" (Pande and Vaidyanathan, 2009).
Long-Term Mispricing and Analysts' Assessment on IPOs: Do Prior Unsuccessful Attempts Matter
2007
In this study we examine the underpricing of initial public offerings (IPOs) by firms that have private placements of equity before their IPOs (PP IPO firms). We find that PP IPOs are associated with significantly less underpricing than their peers. Furthermore, PP IPOs are associated with lower underwriting spreads, more reputable underwriting syndicates, and greater postissue analyst coverage as compared to IPOs that are issued by their industry peers under similar market conditions. Consistent with the implications of the information asymmetry explanation for IPO underpricing, our findings suggest that companies could benefit by conveying their quality via successful pre-IPO private placements that help reduce the cost of going public.