The impact of the costs of subscription on measured IPO returns: the case of Asia (original) (raw)
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An empirical examination of over-subscription in the Malaysian IPO market
2015
This paper examines the effects of the involvement of informed investors and the presence of information asymmetry in fixed price mechanism on over-subscription ratio in the Malaysian initial public offerings (IPO).Analyzing the data on 373 IPOs listed on Bursa Malaysia from 2000 to 2012, we find an insignificant positive relationship between informed investors and over-subscription.However, the relationship between information asymmetry and over subscription is strongly negative.The negative effect of company size suggests that big companies that are considered to have lower information asymmetry receive less investors’ interest, as investments in low risks companies are expected to provide lower initial returns.
IPO subscription dynamics: A comprehensive inquiry into the Indian stock market
Investment management & financial innovations, 2023
The Indian IPO market showcased resilience during the global stock market downturn in 2022, emerging as a notable bright spot in regions such as Europe, the Middle East, India, and Africa. As the bullish rally of 2022 persists, Indian stock markets remain enticing for foreign institutional investors in 2023. A resurgence in IPO activity is anticipated, driven by increasing momentum and larger deals that are poised to overcome the constraints of subdued global sentiments and liquidity pressures, addressing the challenges posed by these factors. The study offers insights into factors influencing IPO subscriptions, capitalizing on the context of heightened stock market volatility and optimistic trends in the Indian stock market. A total of 132 IPOs listed on the Indian stock market between April 2019 and March 2023 were analyzed in this study. Multiple Linear Regression was used to assess the strength of the association between several factors outlined in the literature, and the overall subscription. Among the ten variables investigated in the study, it was observed that three variables under the external factors, specifically Grey Market Premium, IPO Rating, and Broker Recommendations, exerted a significant influence on the overall subscription. While other factors such as allocation proportion and issue attributes, were found to have no discernible influence on the overall subscription. The results indicate that the Indian IPO market demonstrates a prevalence of speculative behavior and a stronger reliance on expert recommendations, rather than being primarily driven by IPO characteristics.
"IPO subscription dynamics: A comprehensive inquiry into the Indian stock market" AUTHORS
Investment Management and Financial Innovations, 2023
The Indian IPO market showcased resilience during the global stock market downturn in 2022, emerging as a notable bright spot in regions such as Europe, the Middle East, India, and Africa. As the bullish rally of 2022 persists, Indian stock markets remain enticing for foreign institutional investors in 2023. A resurgence in IPO activity is anticipated, driven by increasing momentum and larger deals that are poised to overcome the constraints of subdued global sentiments and liquidity pressures, addressing the challenges posed by these factors. The study offers insights into factors influencing IPO subscriptions, capitalizing on the context of heightened stock market volatility and optimistic trends in the Indian stock market. A total of 132 IPOs listed on the Indian stock market between April 2019 and March 2023 were analyzed in this study. Multiple Linear Regression was used to assess the strength of the association between several factors outlined in the literature, and the overall subscription. Among the ten variables investigated in the study, it was observed that three variables under the external factors, specifically Grey Market Premium, IPO Rating, and Broker Recommendations, exerted a significant influence on the overall subscription. While other factors such as allocation proportion and issue attributes, were found to have no discernible influence on the overall subscription. The results indicate that the Indian IPO market demonstrates a prevalence of speculative behavior and a stronger reliance on expert recommendations, rather than being primarily driven by IPO characteristics.
Expected and realised returns for Singaporean IPOs: Initial and long-run analysis
Pacific-Basin Finance Journal, 1996
We analyse initial and long-run returns for all Singapore IPOs made between l July 1973 and 31 December 1992. Initial returns are found to be around 30 percent. However, after rationing and application costs are taken into account initial returns are insignificantly different from the risk-free rate of return, a result consistent with the predictions of the model of Rock (1986). Initial returns are positively related to the level of oversubscription and retained ownership, although the economic significance of the latter is weak. In contrast to many other international studies of IPOs, the long-run average returns for Singaporean IPOs are insignificantly different from an efficient market expectation. While long-run returns for individual companies show considerable variation, these returns are not predictable using information available at the IPO date. We further investigate the large oversubscription rates which are a peculiar feature of the Singapore IPO market, and argue that they are consistent with demand expansion by informed investors. Our estimates of the minimum price that a rational issuer would set in an IPO are below the actual issue price for all issues, given what we regard as reasonable limits on uninformed demand.
Factors that determine IPO returns: Literature review
International journal of applied research, 2017
Initial public offerings (IPOs) generate enormous curiosity both in investors and researchers in finance, for varied reasons. Investors, being true to their interests, would look at an IPO as an instrument to increase their returns, on the other hand researcher look at each IPO to determine if it is following the established pattern or is it defying. Research on IPOs begun in early 1980s and since then researchers could not comprehend fully and explain the IPO firm’s stock market performance, including its valuation.
Journal of Risk and Financial Management
In this paper, we establish the significance and effects of initial public offer (IPO) offer price ranges on subscription, initial trading, and post-IPO ownership structures. The primary market in India provides a unique setting for estimating the effect of various initial public offer (IPO) price ranges and IPO issue factors on the initial demand for an IPO among investors, measured by full IPO subscription/oversubscription, initial turnover (liquidity), and the post-IPO listing ownership structure among investors (ownership). For the IPO pre-listing stage, this study uses firth logistic regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the full subscription/oversubscription of an IPO in each investor category. For the post-IPO listing stage, the study uses OLS regression to estimate the effect of various IPO offer price ranges (low to high) and various IPO issue factors on the initial trading ratio (IPO listing day t...
An empirical investigation of IPO returns and subsequent equity offerings
Journal of Financial Economics, 1993
Several recent papers present signaling models in which firms underprice their initial public offerings of equity (IPOs) so that they can subsequently issue seasoned equity at more favorable prices. We test the implications of these models. We find a positive relation between IPO underpricing and the probability and size of subsequent seasoned offerings. Although these results are consistent with the implications of the signaling hypotheses, the economic significance appears weak. We conduct additional tests to evaluate other ...
International differences in oversubscription and underpricing of IPOs
Journal of Corporate Finance, 1996
We argue that when the offer price of an initial public offering (IPO) is set many days before the issue closes for bidding by investors, relevant price information leaks and becomes public knowledge before investors have finished bidding for firm's shares. Consequently. there are instances when all investors realize ex ante that the offer price is 'too low' and we observe a large oversubscription for the firm's shares. as well as instances when the investors realize that the offer price is 'too high' and the issue fails. If failure is costly, then the offering is underpriced in order to reduce the likelihood that the issue will fail. This is in addition to the underpricing, as suggested in Rock (19861, to compensate the uninformed investors for the adverse selection problem they face in the allocation of shares. Our argument thus explains why underpricing may be larger in situations when there is information leakage.
An Assessment of the Performance of Initial Public Offering (IPOs) in Malaysia
Research Journal of Finance and Accounting, 2015
Initial Public Offerings (IPOs) are largely underpriced in short term. This underpricing phenomenon has been well recognized in nearly all the stock markets in the world. Recent evidence suggests that underpricing is higher in a buoyant stock market. Most studies in the field of IPO have only focused on developed countries. Little is known about underpricing and it is not clear what factors influencing underpricing in developing country. Unlike in developed markets, this study analyzed the existence of underpricing issue of Malaysian IPOs listed in Bursa Malaysia from 2000 to 2008. This study then examines the impact of different use types of proceeds on IPO underpricing. In particular, four main influencing factors of underpricing including IPO size, market volatility, underwriter status and reciprocal of IPO price are investigated. A sample of 102 IPOs was selected and analyzed. Results show that the average market adjusted initial return is 9.4%. A regression analysis was conducted which resulted in positive impact of IPO size, market volatility, underwriter status and reciprocal of IPO price on underpricing. Therefore, this study provides a new perspective to analyze the underpricing problem by focusing on the multiple elements.
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.