This paper studies the performance and the survivorship of New Zealand IPOs for the period 1991 to 2005. We find that the commonly reported features of IPOs, such as underpricing and underperformance, exist in New Zealand, with the level of underpricing declining in recent years. We find that the operating performance of companies in our sample does not change significantly after listing. Underpricing, size and operating performance are found to influence IPO market performance, while higher risk and new start-up companies have lower operating performance after listing. In relation to survivorship, the majority of delisted firms are merger and acquisition targets rather than failed firms. Interestingly, acquired firms have better market performance and have been operating longer than the surviving firms, while failed firms tend to have higher market volatility, change their management more often, and be issued in the hot market periods.
"For example, Ritter (2002) found that the average first day absolute return in the United States (US) between 1980 and 2001 was 18.8 per cent. For New Zealand, in a sample of 143 IPOs between 1979 and 1987, the level was 25.87 per cent (Firth, 1997); whereas, Chi et al., (2010) found that the level decreased to 5.92 per cent and 4.84 per cent for raw and adjusted initial returns (AIRs), respectively, between 1996 and 2005. However, between 2005 and 2011, the level rose again to 8.56 per cent and 9.16 per cent for raw returns and AIRs, respectively (Alqahtani & More, 2012). "
[Show abstract][Hide abstract] ABSTRACT: Abstract
Purpose – The purpose of this paper is to explore the extent of underpricing in the Saudi Arabian market of initial public offerings (IPOs) and whether the sharia-compliance would have a significant impact on the initial returns.
Design/methodology/approach – a comprehensive sample of 72 IPOs in Saudi Arabia between 2004 and September 2010 is used to analyse the initial return after adjusting it to the market movement as well as controlling for some common factors.
Findings – We find that underpricing not only occurs but is also among the highest levels in the world. While traditional factors affecting initial return include age, market timing and firm size, we find that Sharia compliance significantly reduces underpricing in Saudi Arabia. This may imply that Sharia compliance helps to reduce the uncertainty and consequences of the limited information inherent in initial public offerings.
Research limitations/implications – Further research is needed to see if the effect of Sharia compliance status on the short-run performance of IPOs extends to other Islamic countries or is a country-specific characteristic. More firms need to be examined to identify the market characteristics that drive the returns
Originality – This paper is among the first to provide an empirical evidence of the impact of Sharia compliance on the initial return pattern in IPO market.
Keywords – Islamic finance, initial public offerings, Stock returns, Market performance,
Paper type – Research paper.
"The main explanatory variables for the one year market adjusted returns as Dimovski and Brooks (2004) report are excess return, market sentiment and limited liability 8 . Across the Pacific Ocean, Chi et al. (2010) on a fifteen years (1991-2005) for New Zealand indicate mean raw initial return of 6.67%. Tian and Megginson (2007) report that the Chinese stock market has grown very rapidly, but is often distorted by government regulation, and this is especially true for the initial public offering market. "
[Show abstract][Hide abstract] ABSTRACT: We provide new evidence on the impact of the ongoing deep financial crisis on the performance of IPOs. The findings indicate a continuously increasing level of underpricing as a result of the recent financial crunch. This is attributed to underwriters’ efforts to create demand and their desire to reward investors for their participation. Their actions build the ground for long-term underperformance, a conclusion supported by voluminous literature. The pre-IPO’s owner’s loyalty signals the quality and leads to compensation by less underpricing. Going public with a reputable underwriter does not pay, as it does not reduce the amount of money left on the table. Consistent with information revelation theory, a determination for listing captures the underpricing phenomenon.
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