...International Business Research April, 2008 Post-IPO Operating Performance and Earnings Management Nurwati A. Ahmad-Zaluki Banking and Finance Building, College of Business Universiti Utara Malaysia, 06010 Sintok Kedah, Malaysia Tel: 60-4-928-6451 Abstract E-mail: nurwati@uum.edu.my The present study investigates the operating performance and the existence of earnings management for a sample of 254 Malaysian IPO companies over the period 1990-2000. Using accrual-based measure of operating performance, this study finds strong evidence of declining performance in the IPO year and up to three years following IPOs relative to the pre-IPO period. This finding is consistent with the results of prior studies documenting the long run underperformance of IPO companies. The results also confirm that the decline in post-IPO operating performance is due to the existence of earnings manipulation by the IPO manager at the time of going public. Keywords: Initial public offerings, Operating performance, Earnings management 1. Introduction Existing international studies of initial public offering (IPO) companies find that operating performance had declined in the post-IPO period (Jain and Kini, 1994; Mikkelson et al, 1997; Kim et al., 2004). The majority of prior studies are based on the accrual measure of accounting profits which are potentially subject to accounting manipulation by managers, for example through working capital adjustments (Teoh et al., 1998). The most recent...
Words: 7044 - Pages: 29
...CHICKEN IPO VALUATION AND NEGOTIATION FIN 433 WINTER 2016 PROFESSOR GREGG JARRELL Introduction Chicken is a private consulting firm that collects, stores, and analyzes “big data” for large corporations and governments. Chicken was founded in 2008 and had 2014 Sales of $516,302 and EBIT of $206,521. Chicken is planning to become a public firm via an Initial Public Offering (IPO) in which it will sell 100,000 newly-issued common shares to the US investing public at a pre-specified IPO price, and after the IPO it will be traded publicly on the NASDAQ Exchange at a post-IPO market price. Chicken currently has 100,000 shares of common stock outstanding (F shares) that are worth $20 per share before the IPO, all of which are owned by the Founding Shareholders (Founders). Simultaneously with the IPO, Chicken management will purchase 100,000 newly-issued common shares for a pre-specified Exercise Price. All shares of common stock have the same rights to dividends, liquidation, and votes on a per-share basis. All teams must first prepare Reports that perform a DCF valuation of Chicken and explain in detail your team’s strategy for the Negotiation Phase. Reports are due Wednesday, February 3, at 3:00 PM. The Negotiation Phase begins Wednesday, February 3 at 4:30 PM and ends Saturday, February 6 at 10:00 PM. Team Roles and Goals There are 4 team roles in this case. F Teams will represent the Founders who own the F shares. B Teams (Bank) will represent the...
Words: 2507 - Pages: 11
...1 Best practice recommendations for emerging markets IPOs Published by Deutsche Börse AG in collaboration with Deutsche Börse Listing Partners 2 Preamble Preamble The following recommendations and suggestions are designed to help issuers as well as participating banks and advisors to address the special characteristics of an emerging markets company’s initial public offering (IPO) and thus to contribute to a successful IPO. They do not constitute mandatory procedures for conducting an emerging markets IPO. The specific features of each issuer should always be taken into account. Therefore, the following recommendations should not be treated as a comprehensive list of the issues to be considered in emerging markets IPOs. For the purpose of these recommendations, emerging markets IPOs are IPOs of companies whose management, ownership structure and operations are predominantly located in an emerging markets country. Additional information Details on financing options and access to the capital market through Deutsche Börse can be found at www.xetra.com/listing_e. The Listing Center also offers an index of expert capital market specialists: Deutsche Börse Listing Partners. These independent service providers can also be searched by area of business and region: www.xetra.com > Listing > Listing Partners Your contact at Deutsche Börse Listing & Issuer Services Phone +49-(0) 69-2 11-1 88 88 E-mail issuerservices@deutsche-boerse.com Finance your future. Made in Germany ...
Words: 3612 - Pages: 15
...increases of the objects. The higher prices offered by the PE companies also affects the number of initial public offerings (IPO) on the Dhaka and Chittagong Stock Exchanges. One reason for the small number of current IPOs is that the objects simply have been valued higher by PE companies than they would do in an IPO. PURPOSE: The purpose with this thesis is, from a shareholder’s point of view, to analyze and describe the reasons of making an IPO instead of selling to a PE company. METHODOLOGY: Since the research is based on gathering and understanding information regarding specific persons’ choices and motives, a qualitative approach has been conducted. CONCLUSION: All the main motives of the IPO could have been achieved by selling to PE Company, except the motive of attaining share liquidity. One of the attractive reasons for share liquidity is that shareholders easily can choose between reducing ownership, increasing ownership or remain with existing shares. Another attractive reason is that financial institutions normally become shareholders, which in turn increases the credibility of the company. Eight out of the ten companies had parallel plans to the IPO; most of them including a possible PE buy-out scenario. However, no PE Company offered a price high enough for the individual companies. Either the existing owners received a better IPO price, or the remaining owners believed that the stock exchange would out-perform the PE price offers in the long run. Theory...
Words: 13249 - Pages: 53
...general, what attributes make a company a good candidate for an IPO? - Good Business History and Background: Investors will forecast future earnings off of the historical background of the company. It will also show that your company is stable. Many investors will be looking to hold the stock long-term, so if investors trust the background of the company, more people will be willing to invest. - Experienced Management: Good management can ensure that the company will make decisions that are best for the company and to ensure profitability. Also, good management is the basis for growth and performance. Strong management will creates a good public image. - Profitability: A profitable company tells investors that they will actually get a return on their investment. It also shows potential for growth, which can lead to dividends for investors. - Growing Industry: A company can’t grow in a shrinking industry. In a growing industry, the company has better potential to capture a larger portion of market share. - Growing Company: More is better. Investors will reach their maximum utility with a growing company. The objective is to maximize shareholder wealth. A growing company has the best chance of reaching this goal. 2) How does TRX compare on these dimensions? - Good Business History and Background: This company started up in 1999. This case has 6 years of data. - Experienced Management: The management team made a good decision to cut off low margin products in order...
Words: 1627 - Pages: 7
...Case Questions for TRX Inc., IPO ! What attributes make a company a good candidate for an IPO? Good business history: Investors will expect the long-term sustainability through historical financial data. Therefore, the good business history can reach investors’ expectation. Profitability: A profitable company can indicate investors that the company can get a positive ROI. The positive ROI can not only suggest potential growth but also lead to dividends for investors. Visibility and recognition: Visibility enables investors’ better understanding of the business model and increases the recognition. Growth potential: In the growing industry, the company has the higher potential to grow in the future. Solid and experienced management: The good management can act the best interests of shareholders, maximizing the profitability. Furthermore, the decent management can ensure the growth and performance of the company as well as create positive public image. ! How does TRX compare on these dimensions? Good business history: A six-year data shows that the number of travel transactions grew from 9.3 million to 73.5 million in 6 years. In terms of revenues, TRX generated 113.4 million in revenue in 2004, compared with the number of revenue, 63.2 million in 2000. Therefore, the business history indicated the company was growing. Profitability: According to the income statement in Exhibit 2, TRX experienced net loss from 2000 to 2005, which may be unfavorable to TRX...
Words: 931 - Pages: 4
...IPO pricing and allocation: a survey of the views of institutional investors * Tim Jenkinson Said Business School, Oxford University and CEPR Howard Jones Said Business School, Oxford University Abstract Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. Although the theoretical IPO literature has tended to focus on information revelation, the survey raises doubts as to the extent of incremental information production and whether bookrunners are, in practice, able to infer investors’ valuations from their bids. We find that investor characteristics, in particular broking relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks. JEL classification: G23, G24 Keywords : IPO, institutional investors, survey * Corresponding author: Tim Jenkinson, Saïd Business School, 1 Park End Street, Oxford OX1 1HP, UK. e: tim.jenkinson@sbs.ox.ac.uk; t: +44 1865 288916; f: +44 1865 288805. We are very grateful to the Investment Management Association, in particular Tina Johnson, Jane Lowe, and Gordon Midgely, and the Alternative Investment Management Association, in...
Words: 11460 - Pages: 46
...governance variables and IPO pricing. Results show that managerial ownership is positively related to both offer price and market price premium, which is consistent with a high level of managerial ownership reducing agency costs leading to a closer alignment of interests between managers and shareholders. High blockholder ownership is positively related to offer price premium but not market price premium which implies that underwriters, but not investors, perceive that the quality of the IPO is associated with blockholder ownership. Board size is negatively associated with both measures of IPO pricing, suggesting that smaller boards are better. The other conventional corporate governance variables are not significant. Family ownership and family management are negatively related to both offer price and market price premium, which is consistent with the suggestion that the lack of separation of ownership and management causes family-controlled firms to suffer from cloudy financial vision, resulting in a negative relationship with pricing. However, family chairman is positively associated with offer price premium which implies that underwriters view family leadership on the board as beneficial. The other family governance variables are not significant. None of the board expertise variables examined are significantly related to IPO pricing. I. Introduction The launching of an initial public offering (IPO) is a pivotal event in a firm's history. In the pre-IPO period, firms tend...
Words: 4139 - Pages: 17
...pesticides and other harmful chemicals. These breakthroughs have changed Gene One from a $2 million start-up company into a $400 million company on the verge of going public. The original members of Gene One are challenged with organizing the company and preparing it for an initial public offering (IPO) on Wall Street. The IPO requires the company to make several changes to the structure of the company’s executive board, marketing strategy, and product invention. Leadership at Gene One must identify weaknesses in management concerning the IPO, and the stress associated with going public. Management is challenged with accomplishing one of the following: 1. Gene One becomes a public company and the goals suggested by the chief executive officer (CEO) are met by adding new people to the existing staff and retaining the team’s culture. 2. Gene One becomes a public company and the goals suggested by the CEO are met by removing people and changing the company’s culture. Both of these options require management to move forward with the IPO and to make stressful decisions concerning the company’s future. Dealing with the stress of the change will determine the success of the IPO. “In an intelligently managed organization, that leadership isn’t a randomly operating process; it’s ‘a propulsive force given motion by purpose, and by a joint effort to accomplish it.’ That is its natural tendency, its bias. But it is management’s role to ensure that this organizational leadership...
Words: 1999 - Pages: 8
...[pic] IPO Valuation By: Ryan DeCoudres & Jose Alessandro de Vasconcelos March 24, 2009 TABLE OF CONTENTS INTRODUCTION 2 COMPANY AND INDUSTRY BACKGROUND 3 GOING PUBLIC 4 THE IPO PROCESS 5 JETBLUE VALUATION 10 RECOMMENDATION 12 WHAT HAPPENED 12 REFERENCES 15 INTRODUCTION Following the terrorist attacks of 9/11, the airline industry was in the doldrums. Many of the largest carriers in the nation had filed for bankruptcy protection and were asking the federal government for help so they could survive. Certainly few people at this time considered the airline industry to be an extremely profitable venture, but where others saw despair, David Neeleman, CEO and founder of JetBlue Airways, saw opportunity. In 2002, after 2 years of profitable operations and less than a year after the attacks that shook the industry to its core, JetBlue Airways had its Initial Public Offering (IPO) and went public. This case study outlines the IPO underwriting process and uses JetBlue as an example to describe the steps throughout the way. It also asks the analyst to come up with a valuation for this IPO, based on the financial and non-financial data presented. In the following pages, we will discuss the pros and cons of going public, the IPO process itself, and walk through the calculations that led us to our...
Words: 3877 - Pages: 16
...Research Assistant Angela Groeninger, under the supervision of Professor Colin Blaydon as a basis for class discussion rather than to illustrate either effective or ineffective management. Copyright © 2003 Trustees of Dartmouth College. All rights reserved. To order additional copies, please call (603) 646-0522. No part of this document may be reproduced, stored in any retrieval system, or transmitted in any form or by any means without the express written consent of the Tuck School of Business at Dartmouth College. N As shown in Exhibits 1 and 2, mergers and acquisitions are much more common in recent years than IPOs. Entrepreneurs that dream of an IPO and insist upon it when seeking an exit are vastly reducing their opportunities for successfully monetizing their shares. O The most popular exit strategies are: • A merger with another company, either public or private • An acquisition by another company, either public or private • An Initial Public Offering (“IPO”) whereby a private company offers its shares to the general public through a registration process with the Securities and Exchange Commission (“SEC”) • A private placement, whereby the company sells its securities to accredited or institutional investors. T C O In the investment world, an “exit” is the process by which founders, management and investors in a startup or growth company successfully find public or corporate buyers for some or...
Words: 7905 - Pages: 32
...Hertz Ipo Case Analysis Executive Summary Hertz group had initiated an IPO in July 2006 when Carlyle group, together with Clayton, Dubilier &Rice, and Merril Lynch Global Private equity , three prominent firms had filed to take the firm public. However this action has come just seven months after the three had combined to purchase Hertz from Ford Motor Company for Approx. $15 million. Berg, MD of Vandelay Capital Management debated whether to invest in this IPO.The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006 , being the biggest reason why the IPO generated widespread criticism along with the speed with which the IPO was conducted . In the face of this criticism, the demand for the Hertz IPO weakened, and the offer price was reduced from the initial file price range of $16-$18 to just $15. Berg must assess whether at $15 per share, Hertz offers an attractive investment for this fund. After detailed analysis on the sponsors' returns on their investment and the attractiveness of the $15 offer price to public shareholders, along with the circumstances surrounding the IPO, it was concluded and advised not to invest. Reasons behind the IPO One of the obvious reasons behind the IPO was Hertz’s strong brand equity that gave it strong pricing power since it was ranked as the top worldwide general use car rental brand and one of the largest rental companies in the U.S and Canadian markets...
Words: 1734 - Pages: 7
...IPO When a company decides to go public it is viewed as no longer been owned by a set of private individuals, but instead, it is viewed as now being owned by those individuals as well as by members of the public (or shareholders). This ownership is acquired by shareholders through the purchase of shares in an Initial Public Offering (IPO) or even after an IPO. “An Initial Public Offering (IPO) may be defined as the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.” The principal participants in the IPO process are the company’s management, board of directors, counsel, independent accountants, and pre-IPO stockholders; the managing underwriters, research analysts, and underwriters’ counsel; and, of course, the SEC just to name a few. A private company may decide to go public in order to raise additional capital to fund its business and or take advantage of an investment opportunity which will not only benefit the company but also its shareholders. There are many sound reasons for private companies wanting to go public. For instance, equity capital obtained from an IPO is considered a permanent form of capital since there is no interest to be paid on the equity, and it is not repayable like debt. Therefore, funds generated by a public offering are considered a relatively safe form of capital...
Words: 2059 - Pages: 9
...1. In general, what attributes make a company a good candidate for an IPO? While researching the internet for facts and information about what attributes make a company a good candidate for an IPO, I found an article on E-commerce that explained some facts and attributes. First, I found out some basics facts such as, a company doesn't have to have a particular level of sales and/or a consistent record of earning/cash flow to execute a successful IPO. It was interesting to find out that it isn't what your company "has" done, but more or "what" your company will do. If management's story is worth listening to, then maybe they can convince the market, that they know where they are headed, and they know how to get there. This can be done by hiring public firms to promote the new stock, and to keep investors informed of the vision that management envisions. However, I did find that a company should have one of two specific qualities in order to launch a successful public offering. First, if a company has been able to solidify its entry into the industry by differentiating its product/service, then it will be more likely to survive the negative changes happening within that industry, due to the fact that they are insulated because of their unique segment to which makes their product attractive. If a company can find a way to show its attractiveness to a more narrow segment, then it will less to lose in a time of violent change in the industry. The other quality is Industry...
Words: 1938 - Pages: 8
...） ， ， ） 、 。 （ BVCA ） Private Equity Fund （ PE ） ， 。 、 ， Pri- ， VC 。 PE ， （ NVCA ） PE Public （ ， “ “ 、 ： ， 、 vate ） ” ， PE 、 ， ， 。 ， Venture Economics Venture One ， 、 （ Management Buyout ， MBO ）、 （ Mezzanine investment ）、 （ fund of funds ， FOF ） 。 PE Equity 、 ”。 ， 88 /2009.3 ， （ 2003 ） ， ， 、 、 、 ； 。 ， 。 ， 、 。 ： ， ， 、 、 、 ， 、 Pre-IPO PE ； ， 。 ； 。 （ 2007 ） 、 （ Mezzanine ） 、 （ Buyout ） 、 （ Real Estate ） 、 PE 、 (FaPE Acs & Audretsch （ 1994 ） （ ） ， ； (Distreesed) 、 cilities) 。 ， 、 ， PE ， 、 、 、 。 、 ， ， 。 、 ， PE GDP ， ， ， ， GDP 。 ， 。 GDP 。 PE PE 2007 6 PE 。 ， ， 。 ， 。 》 、 ， （ 2008 ） ， ， 、 。 、 ， 《 ， 。 ， ， ， ， 。 Gompers & Lerner （ 1998 ） ， 、 、 ， 、 、 。 ， 、 PE PE 、 GDP PE PE 。 ： ； PE IPO GDP PE PE 21 PE IPO 、 、 、 VC 。 ， 。 Jeng ； 。 ， — — & Wells （ 2000 ） ， ， 、 、 10 PE ， 。 、 GDP 。 /2009.3 89 、 ， ， ， 。 49 IPO 、 ， ， 。 La Porta （ 1999b ） 、 PE ， ， ， 。 PE Lerner （ 1998 ） Wells IPO ， Gompers & ， Jeng & 27 。 ， ， ， ， 。 ， 、 、 ， ， ， 。 （ ） 、 ， 。 Ried （ 1998 ） ， 、 Q PE 。 GDP PE 。 ， PE 。 PE PE 、 、 ， 。 Megginson （ 2004 ） ， ， 。 Cumming & MacIn- PE tosh （ 2002 ） ， ， PE - IPO 。 Cumming （ 2004 ） 。 ， ， 。 Can Kut 。 （ Can Kut et al ， 2007 ） ， 。 ， 。 Can Lerner & Schoar （ 2005 ） ， 。 。 Kaplan （ 2003 ） ， （ the 、 Kut 5 。 PE ， 、 ， ， 、 。 、 、 、 ...
Words: 900 - Pages: 4
