The IPO initial returns-aftermarket risk question revisited: evidence from firms in Taiwan
-
DOIhttp://dx.doi.org/10.21511/imfi.16(2).2019.02
-
Article InfoVolume 16 2019, Issue #2, pp. 14-24
- 1125 Views
-
138 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The purpose of this study is to utilize the Three Stage Least Squares (3SLS) of the simultaneous equation estimation approach to revisit the possible cross relationship between IPO initial returns and aftermarket risk. A structural form equation system of IPO initial returns and aftermarket risk equations is estimated first to obtain the structural form coefficients. The analytically derived reduced form coefficients are then calculated to analyze the net effects of each exogenous variable on two endogenous variables. Major findings of this study are as follows. First, the signs of net effects of all exogenous variables on IPO initial returns and aftermarket risk are the same. In other words, any change in exogenous variables, IPO initial returns and IPO aftermarket risk will change in the same direction, i.e., the higher (lower) the IPO initial returns, the higher (lower) the IPO aftermarket risk. Second, the less the degree of corporate governance, the higher the IPO initial returns and aftermarket risk. Third, the higher the market risk or return before IPO, the higher the IPO initial returns and aftermarket risk.
- Keywords
-
JEL Classification (Paper profile tab)G10, G12, G40
-
References39
-
Tables4
-
Figures0
-
- Table 1. Descriptive statistics for all variables
- Table 2. 3SLS estimation results of IPO initial return structural form equation
- Table 3. 3SLS estimation results of aftermarket risk structural form equation
- Table 4. The analytically derived reduced form coefficients of the 3SLS estimation
-
- Aggarwal, R., & Rivoli, P. (1990). Fads in the Initial Public Offering Market? Financial Management, 19(4), 45-57.
- Baron, D. P. (1982). A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues. Journal of Finance, 37(4), 955-976.
- Beatty, R. P., & Ritter, J. R. (1986). Investment Banking, Reputation, and the Underpricing of Initial Public Offerings. Journal of Financial Economics, 15(1-2), 213-232.
- Booth, J. R., & Smith, R. L. (1986). Capital Raising, Underwriting and the Certification Hypothesis. Journal of Financial Economics, 15(1-2), 261-281.
- Boulton, T. J., Smart, S. B., & Zutter, C. J. (2017). Conservatism and International IPO Underpricing. Journal of International Business Studies, 48(6), 763-785.
- Bouzouita, N., Gajewski, J., & Gresse, C. (2015). Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect. Financial Management, 44(4), 785-810.
- Brennan, M. J., & Franks, J. (1997). Underpricing, Ownership and Control in Initial Public Offerings of Equity Securities in the UK. Journal of Financial Economics, 45(3), 391-413.
- Carter, R., & Manaster, S. (1990). Initial Public Offerings and Underwriter Reputation. Journal of Finance, 45(4), 1045-1067.
- Cassia, L., Giudici, G., Paleari, S., & Redondi, R. (2004). IPO Underpricing in Italy. Applied Financial Economics, 14(3), 179-194.
- Chalk, A. J., & Peavy, J. W. (1987). Initial Public Offerings: Daily Returns, Offering Types, and the Price Effect. Financial Analysts Journal, 43(5), 65-69.
- Chanine, S., Filatotchev, I., & Wright, M. (2007). Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France. Journal of Business Finance and Accounting, 34(3-4), 505-528.
- Chemmanur, T. J. (1993). The Pricing of Initial Public Offerings: A Dynamic Model with Information Production. The Journal of Finance, 48(1), 285-304.
- Chowdhry, B., & Nanda, V. (1996). Stabilization, Syndication, and Pricing of IPOs. Journal of Financial and Quantitative Analysis, 31(1), 25-42.
- Davidson, R., & MacKinnon, J. G. (1989). Testing for Consistency Using Artificial Regressions. Econometric Theory, 5(3), 363-384.
- Davidson, R., & MacKinnon, J. G. (1995). Estimation and Inference in Econometrics. Econometric Theory, 11(3), 631-635.
- Deng, Q., & Zhou, Z. (2016). Overreaction in ChiNext IPOs’ Initial Returns: How Much and What Caused It? Emerging Markets Review, 29, 82-103.
- Gleason, K., Johnston, J., & Madura, J. (2008). What Factors Drive IPO Aftermarket Risk? Applied Financial Economics, 18(13-15), 1099-1110.
- Gompers, P. A. (1996). Grandstanding in the Venture Capital Industry. Journal of Financial Economics, 42(1), 133-156.
- Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica, 46(6), 1251-1271.
- Komenkul, K., Sherif, M., & Xu, B. (2017). IPOs’ Signalling Effects for Speculative Stock Detection: Evidence from the Stock Exchange of Thailand. Applied Economics, 49(31), 3067-3085.
- Lee, J. S. (2008). The Determinants of IPO Underpricing: Application of Quantile Regression. Review of Securities & Futures Markets, 20(1), 47-100 (published in Chinese).
- Lee, P. J., Taylor, S. L., & Walter, T. S. (1996). Australian IPO Pricing in the Short and Long Run. Journal of Banking and Finance, 20(7), 1189-1210.
- Lin, C. J., & Chang, C. C. (2009). Abnormal Change of Board Members, Family Firms and Fraud. The International Journal of Accounting Studies, 48, 1-33 (published in Chinese).
- Ma, T., & Hu, T. C. (2003). The Determination of Underwriting Mechanisms and It’s Impact on IPO Discount: Auction, Book-building and Fixed Price. Journal of Financial Studies, 11(1), 1-40 (published in Chinese).
- Malhotra, M., & Nair, M. (2105). Initial Public Offerings’ Underpricing: A Study on the Short Run Price Performance of Book-Built IPOs in India. Paripex-Indian Journal of Research, 4(2), 8.
- Peng, Y., & Wang, K. (2007). IPO Underpricing and Floatation Methods in Taiwan: A Stochastic Frontier Approach. Applied Economics, 39(19-21), 2785-2796.
- Pettway, R. H., Thosar, S., & Walker, S. (2008). Auctions Versus Book-built IPOs in Japan: A Comparison of Aftermarket Volatility. Pacific-Basin Finance Journal, 16(3), 224-235.
- Raharja, B., Suhaeli, D., & Mranani, M. (2017). Research of the Stock Price Overreaction and Investor Overconfidence Issues. Business, Management and Education, 15, 127-139.
- Ritter, J. R. (1984). The “Hot Issue” Market of 1980. Journal of Business, 57(2), 215-240.
- Ritter, J. R. (1991). The Long-run Performance of Initial Public Offerings. Journal of Finance, 46(1), 3-27.
- Rock, K. (1986). Why New Issues Are Underpriced. Journal of Financial Economics, 15(1-2), 187-212.
- Ruud, J. S. (1993). Underwriter Price Support and the IPO Underpricing Puzzle. Journal of Financial Economics, 34(2), 135-151.
- Sherman, A. E. (2005). Global Trends in IPO Methods: Book Building versus Auctions with Endogenous Entry. Journal of Financial Economics, 78(3), 615-649.
- Smith, C. W. Jr. (1986). Investment Banking and the Capital Acquisition Process. Journal of Financial Economics, 15(1-2), 3-29.
- Vakrman, T., & Kristoufek, L. (2015). Underpricing, Underperformance and Overreaction in Initial Public Offerings: Evidence from Investor Attention Using Online Searches. Springerplus, 4, 84.
- Welch, I. (1989). Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings. Journal of Finance, 44(2), 421-449.
- Yeh, Y., Shu, P., & Guo, R. (2008). Ownership Structure and IPO Valuation Evidence from Taiwan. Financial Management, 37(1), 141-161.
- Yu, T., & Tse, Y. K. (2006). An Empirical Examination of IPO Underpricing in the Chinese A-share Market. China Economic Review, 17(4), 363-382.
- Zhou, L., & Sadeghi, M. (2019). The Impact of Innovation on IPO Short-term Performance – Evidence from the Chinese Markets. Pacific-Basin Finance Journal, 53, 208-235.