...journal homepage: www.elsevier.com/locate/jbf Underpricing of IPOs: Firm-, issue- and country-specific characteristics Peter-Jan Engelen a,*, Marc van Essen b a b Utrecht University, School of Economics, Utrecht, The Netherlands Erasmus University, Rotterdam School of Management, Rotterdam, The Netherlands a r t i c l e i n f o a b s t r a c t Using a large firm-level dataset of 2920 IPOs from 21 countries we examine the impact of country-level institutional characteristics on the underpricing of IPOs. Through hierarchical linear modeling we are able to control for firm-specific and issue-specific characteristics and test whether country-specific institutional characteristics add explanatory power to explain the level of underpricing. Our results show that about 10% of the variation in the level of underpricing is between countries. The quality of a country’s legal framework, as measured by its level of investor protection, the overall quality of its legal system and its level of legal enforcement, reduces the level of underpricing significantly. Ó 2010 Elsevier B.V. All rights reserved. Article history: Received 4 July 2009 Accepted 6 January 2010 Available online 11 January 2010 JEL classification: G30 G32 G38 K22 Keywords: IPO Underpricing Legal framework Investor protection Multi-level modeling 1. Introduction When companies go public, a well-documented phenomenon is the underpricing of the initial public offering (IPO). On average, shares seem to be offered at a...
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...environment affecting IPO decision” BRM Project – IKEA + IPO Abstract This research is aimed at developing a new model that should be able to determine for each privately owned company whether going public is a possibility for attracting new capital. Research upon IPOs resulted in variables of which a conceptual and hypothesized model were created. A meta-analysis and case study should determine the relevance and reliability of the model. Thereafter, a final model can be composed which can be applied to IKEA Group, our target company for the research, in order to obtain the final result; IKEA Group is qualified for an IPO, or not. Table of contents Introduction II 1. Rationale 1 2. Situational Analysis 2 2.1 Initial Public Offering 2 2.2 Advantages 3 2.3 Disadvantages 3 3. Theoretical Background 4 3.1 Initial Public Offering 4 3.2 Product market characteristics and performance 4 3.3 Industry characteristics 5 3.4 Initial underpricing 5 3.5 Hot and cold markets and IPO waves 6 3.6 Long-run performance 6 4. Conceptual Model 8 4.1 Hypotheses 9 4.1.1 Hypotheses Independent variables 9 4.1.2 Moderating Variables 9 5. Research design 11 5.1 Unit of analysis 11 5.2 Meta-analysis 11 5.2.1 The hypothesized model 11 5.2.2 The implementation 13 5.3 Case study 15 5.4 The implementation of the results 15 Bibliography 16 Appendices 20 * * Introduction Introduction The consideration of undertaking an IPO is one of the most...
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...EF5052(A) INVESTMENT CASE 2 Netscape’s IPO Group 7 JU Fei LIU Yao LIU Yini WU Tianyi ZHANG Xuehui ZHANG Yiyun 52752084 52815259 52750804 52748187 52700026 52738944 Netscape’s IPO Brief Introduction Netscape Communication Corporation is going to issue its initial public offering in August 9, 1995. It is a young but rapidly growing company which is founded in April 1994 and only operates for 15 months. Netscape is also going through losses and never gain profits. But in the time of rapidly developing of the Internet, Netscape now had succeeded in capturing 75% of the Web browser market by using its most popular product, Netscape Navigator. Netscape has set the industry standard and is the indisputable leader of its kind. Netscape Navigator begun to ship in December 1994. Until then, Netscape did not earn significant product revenues. And Netscape Navigator generated more than half of total revenues for the company in the first two quarters in 1995. The other main source of revenues is generated by Netscape’s server and integrated applications products. In terms of the market share, we can say that Netscape has a promising future by using its excellent Web browser, Netscape Navigator. Another reason for its promising future is the industry background that Internet is in a rapidly developing position. However, Netscape is also facing kinds of competition in every market...
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...ROSETTA STONE: pricing the 2009 IPO Teaching Note This case examines the April 2009 decision of Rosetta Stone management to price the initial public offering of Rosetta Stone stock during one of the most difficult periods in capital-raising history. The case outlines Rosetta Stone’s unique language-learning strategy and its associated strong financial performance. Students are invited to value the stock and take a position on whether the current $15 to $17 per share filing range is appropriate. The case is designed to showcase corporate valuation using discounted cash flow and peer-company market multiples. The epilogue details the 40% first-day rise in Rosetta Stone stock from the $18 offer price. With this backdrop, students are exposed to a well-known finance anomaly—the IPO underpricing phenomenon—and are invited to critically discuss various proposed explanations. The case provides opportunities for the instructor to develop any of the following teaching objectives: * Review the institutional aspects of the equity issuance transaction. * Explore the costs and benefits associated with public share offerings. * Develop an appreciation for the challenges of valuing unseasoned firms. * Hone corporate valuation skills, particularly using market multiples. * Evaluate the received explanations of various finance anomalies, such as the IPO underpricing phenomenon. Study Questions 1. What are the advantages and disadvantages...
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...MANAGER REPUTATION, UNDERPRICING LONGAND LONG-RUN PERFORMANCE OF INITIAL PUBLIC OFFERINGS: EVIDENCE FROM THE SINGAPORE IPO MARKET VOON PEIJUN (Bachelor of Business Administration (Hons), NUS) A THESIS SUBMITTED FOR THE DEGREE OF MASTERS OF SCIENCE (BUSINESS) DEPART DEPARTMENT OF FINANCE AND ACCOUNTING NATIONAL UNIVERSITY OF SINGAPORE 2009 ACKNOWLEDGEMENT I would like to express my warmest gratitude to Professor Michael Shih for his patient guidance and encouragement all this while. A very big thank you, Sir. I would also like to take this opportunity to thank my family for their love and concern all these years. Thank you Dad, Mum and Brother. Without their support, I would not have come so far. Thank you! Voon Peijun 2009 Page i ABSTRACT The study explores the role of issue managers in the initial public offering (IPO) process. Empirical research shows that IPOs are associated with two significant market anomalies: short-run underpricing puzzle and long-run underperformance phenomenon. This paper examines the reputational influence of issue managers on the two anomalies. Employing the newly developed ‘twelve-month rolling’ reputation ranking approach, our study is the first to furnish a comprehensive ranking of all the issue managers with a substantial presence in Singapore. Based on a sample of 384 IPOs listed on the Singapore Exchange between January 1, 1997 and August 22, 2008, we find evidence of prevalent short-run underpricing and long-run underperformance...
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...‘RETURN’ AND ‘TRUST’ ON IPO GRADING: AN EMPIRICAL ANALYSIS Biju Thomas Muttath Head–Finance (Star Group), Research Scholar, R&D Centre, Bharathiar University, Coimbatore–46, T.N, India Dr. Assissi Menachery Professor, Loyola Institute of Technology & Science, K.K Dist, T.N, India ABSTRACT Oversubscription during IPO is the result of demand over supply due to investors’ keen interest and expectation to subscribe new shares. Grading agencies play a major role in attracting investors to subscribe shares during IPO. This is due to the ‘trust’ that investors have on the grading agency, regarding its capability to perform research on the key fundamental indicators. Informed and knowledgeable investors act vigorously to get maximum shares during the initial public offer. Book building pricing method plays vital role in attracting the investors who anticipate efficient price discovery. The study attempts to provide insights to investors on how significantly efficient the listing prices of oversubscribed shares between 1 to 5 grades by approved rating agencies are; as well as the profitability in investing oversubscribed IPOs with respect to the 1) Close price of the listing day 2) Short term and 3) Long term returns in both manufacturing and service sector. Key words: Book building, Grading, Hot Issue Market, IPO, Under-pricing) Cite this Article: Biju Thomas Muttath and Dr. Assissi Menachery, Investor Expectations on ‘Return’ and ‘Trust’ on IPO Grading: An Empirical...
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...Introduction………………………………………………………………………………..3 How the World Wide Web Began………………………………………………………….4 Tim Berners Lee……………………………………………………………………………4 How the Bubble Inflated…………………………………………………………………..5 How the Bubble Popped…………………………………………………………………..6 What Lessons were Learned……………………………………………………………….7 Could it have been Stopped………………………………………………………………… Introduction The internet bubble history started in 1993 with the public being able to access the World Wide Web. The WWW was inflated with the overpriced investment returns from 1994 through 2000. The bubble of the WWW busted wide open in 2001. At that time the Nasdaq was often quoted as a big indicator of the bubble. During that time the Nasdaq rose from around $750 dollars to approximately $5130 dollars. That was and incredible increase of about 682% from January 1995 continuing through March 2000. During this time the industry was focusing primarily on computer software. They focused on this due to the high profit margin for the software. In this paper I will explore the many avenues of how the WWW was created and the rise and fall of the internet creation. Figure [ 1 ] flatworldbusiness.worldpr How the World Wide Web Industry Began In the beginning ideas for the WWW go back as far as 1946. A gentleman named Murray Leinster wrote a story that talked about Logics also known as computers. Mr. Leinster said that its occupancy was in every home. The story does take several different avenues, but with the same...
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...|IPO Valuation Procedure in Bangladesh | | | | | | | Internship Report IPO Valuation Procedure in Bangladesh Prepared for: Professor Shakil Huda Chairman IBA Career Center Institute of Business Administration University of Dhaka Supervised by: MsSyedaMahrufa Bashar Lecturer Institute of Business Administration University of Dhaka Prepared by: Asif Rezwan Roll: 64, MBA 44D and Management Trainee Officer, LankaBangla Investments Limited Institute of Business Administration University of Dhaka June 24, 2012 June 24, 2012 MS. Kanij Fahmida Assistant Professor Department of Accounting Faculty of Business Studies Bangladesh University of Business & Technology(BUBT) Dear Sir, Subject: Letter of Transmittal for Internship Report I, Ibna Shina Shibly, am submitting my internship report on “IPO Valuation Procedure in Bangladesh”. The internship period and the subsequent effort in writing this...
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...Investment Banking Giuliano Iannotta Investment Banking A Guide to Underwriting and Advisory Services Professor Giuliano Iannotta Department of Finance ` Universita Bocconi via Roentgen 1 20136 Milano Italy giuliano.iannotta@unibocconi.it ISBN: 978-3-540-93764-7 e-ISBN: 978-3-540-93765-4 DOI 10.1007/978-3-540-93765-4 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2009943831 # Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) To my family ...
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...Google IPO initial public offerings (IPOs) since Netscape's public offering in 1995.' Bullish investors believed Google could set off a string of successful IPOs and put an end to a fouryear lull in technology offerings. 2 Executives at Google faced several questions in the following months, beginning with whether or not to sell shares to the public market.' If they made the decision to take the company public, what options did Google have for selling those shares? Was the traditional form of book-building through an investment bank necessarily the best course of action? As large investment banks were courting Google's potentially enormous business, management had to evaluate the different options available for a company ready to move forward. Ultimately, Google chose to sell its stock through W.R. Hambrecht + Co.'s OpenIPO, which was modeled on auction-based offering formats in France, Japan and elsewhere. In 2004, Hambrecht's track record of success was mixed at best and even today the future of this IPO format in the United States is far from certain. IN THE SPRING OF 2004, GOOGLE WAS ONE OF THE MOST TALKED-ABOUT I. HISTORY AND BUSINESS MODEL In 1995, Larry Page, 24, and Sergey Brin, 23, first met as Stanford University computer science graduate students.4 Their company Web site describes that first encounter as a clash of personalities that eventually led to their now-famous creative solution for retrieving relevant information from large sets of data.' At the time, search...
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... To all of you, Thank you Abstract The goal of this thesis is to evaluate and present the main alternative sources of finance for shipping corporations in the scope of the post-2008 market downturn. By “alternative” the author refers to any source finance that is not vanilla financing i.e. bank debt. Lists of benefits and drawbacks for each alternative source will be presented for all parties of the transaction in question. This is done in order to present an evaluation that will facilitate the reader in understanding the value of each source as well as potential costs and risks. While there are numerous alternative sources that could be covered, the emphasis has fallen only on those that carry at least a sizeable portion of market transactions. The study, similar to the industry itself, has a global character as the author felt that limiting the study to specific countries would give biased results. This study will by no means present the best source of finance for this particular industry. As will be stressed greatly below, financing depends very much on the specific needs of each...
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...ARTICLE IN PRESS Journal of Financial Economics 84 (2007) 330–357 www.elsevier.com/locate/jfec Politically connected CEOs, corporate governance, and Post-IPO performance of China’s newly partially privatized firms$ Joseph P.H. Fana,Ã, T.J. Wonga, Tianyu Zhangb a The Chinese University of Hong Kong, Shatin, N.T., Hong Kong b City University of Hong Kong, Kowloon, Hong Kong Received 19 August 2005; received in revised form 31 January 2006; accepted 6 March 2006 Available online 24 January 2007 Abstract Almost 27% of the CEOs in a sample of 790 newly partially privatized firms in China are former or current government bureaucrats. Firms with politically connected CEOs underperform those without politically connected CEOs by almost 18% based on three-year post-IPO stock returns and have poorer three-year post-IPO earnings growth, sales growth, and change in returns on sales. The negative effect of the CEO’s political ties also show up in the first-day stock return. Finally, firms led by politically connected CEOs are more likely to appoint other bureaucrats to the board of directors rather than directors with relevant professional backgrounds. r 2007 Elsevier B.V. All rights reserved. JEL classification: G34; L33; P31 Keywords: Political connections; Corporate governance; IPO performance; Partial privatization; China We appreciate helpful comments from Stijn Claessens, Mara Faccio, Simon Johnson, Florencio Lopez-deSilanes, John McConnell, Randall Morck, Harold Mulherin...
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... D) normal E) uniform 2. The notion that actual capital markets, such as the NYSE, are fairly priced is called the: A) Efficient Markets Hypothesis (EMH). B) Law of One Price. C) Open Markets Theorem. D) Laissez-Faire Axiom. E) Monopoly Pricing Theorem. 3. An asset's return on investment has two components, one of which is ______, which reflects the cash you receive directly while you own the investment. A) the capital gain B) the income component C) your reward for bearing risk D) your total dollar return E) your gross return on that investment 4. Why do long-term government bonds have a risk premium? A) They are not default-free. B) They are virtually identical to long-term corporate bonds. C) The government cannot easily raise tax money to repay the bonds. D) The long time period to maturity. E) Long-term government bonds don't have a risk premium. 5. Over the past 74 years, which of the following investments has been considered the most risky? A) Small company stocks B) Common stocks C) Treasury bills D) Treasury bonds E) Corporate bonds 6. Suppose you...
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...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...
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...this paper will look at the theory and evidence related to stock price reactions around announcements of differing security offerings, the contractual arrangements associated with the marketing of corporate securities and incentives for under-pricing in initial public equity offerings. 2. On the corporation’s choice of security to offer When contemplating the type of security to issue, the corporation must consider the reaction of the market to its announcement. Four generalisations are made when looking at the two-day common stock price reactions to the announcement of industrial and utility firms raising capital with various securities – * average abnormal returns are non-positive; * abnormal returns around the time of the announcements of common stock sales are negative and larger in absolute value than those observed with preferred stock or debt; * abnormal returns around announcements of convertibles are negative and larger in absolute value than those for comparable non-convertible securities; and * abnormal returns related to security issues by industrials are negative and larger in absolute value than those for utilities The author looks at several hypotheses for this pattern of relative stock price effects. While they are not mutually...
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