ASX small firm/microcap listings: the IPO ‘Pop’ and two decades of subsequent returns

Abstract

We examined IPO discounts and average returns for all available ASX (de)/listed IPOs from 1999 to 2019. We found that the average 18.45 percent offering discount was close to that observed in the US, as were the discount time series behaviour and distribution. Furthermore, the average annualised return on a market‐weighted portfolio of the ASX small/microcap IPOs, from close‐of‐listing‐day price to delisting or 31 December 2019, is 18.62 percent compared to 2.28 percent for large‐caps. Small/microcap post‐listing return differentials were highest for listings filed in Western Australia, and for the metals and mining and software industries.

Australian initial public offerings and US venture capital: different structures for similar early-stage funding?

“…The ASX's success in listings since the turn of the millennium greatly differs from other developed markets. Since the 1980s, the ASX has steadily increased its number of listed companies (from 982 in 1980), with 78% of new listings being early-stage small or microcapthose with AU$75m or less in total market capitalisation at IPO (Gilbey et al, 2022). The ASX IPO experience contrasts with that of the USA, where the number of listed firms has steadily declined from a peak of over 8,000 companies in 1997 to just 4,266 companies in 2019 [4].…”

“…In recent decades, the Australian Securities Exchange (ASX) has managed to defy the significant global decline in smaller company exchange listings (Jensen et al, 2021). This was accomplished primarily by allowing the listing of small early-stage companies on the main exchange board under the same regulatory listing requirements as their larger counterparts (Gilbey et al, 2022). Over the past two decades, in allowing listings ranging from AU$3m to $6bn in market capitalisation, 78% of which are predominantly small/micro "emerging" company listings, the ASX has effectively extended the supply of public new-listing…”

Segmented financial risk tolerances within the standardised initial public offering regulatory environment of the Australian Securities Exchange

“…Industry discussions indicate that WA is felt to hold a higher risk appetite within the regional ecosystem for earlier stage, smaller companies that seek to be listed on the ASX. Therefore, to explore this proposition, we examined the IPO data sample of Gilbey et al (2021), who identified 2,018 IPOs conducted on the ASX from January 1999 to December 2019. Guided by Rose and Solomon (2016), Gilbey et al (2021) divided the IPO sample into three sizes using the market capitalisation of firms at IPO dates: (i) small-cap IPOs: < $75 million market capitalisation upon listing; (ii) middle-cap IPOs: $75-$700 million market capitalisation upon listing; and (iii) large-cap IPOs: > $700 million market capitalisation upon listing (Rose & Solomon, 2016).…”

“…Therefore, to explore this proposition, we examined the IPO data sample of Gilbey et al (2021), who identified 2,018 IPOs conducted on the ASX from January 1999 to December 2019. Guided by Rose and Solomon (2016), Gilbey et al (2021) divided the IPO sample into three sizes using the market capitalisation of firms at IPO dates: (i) small‐cap IPOs: < $75 million market capitalisation upon listing; (ii) middle‐cap IPOs: $75–$700 million market capitalisation upon listing; and (iii) large‐cap IPOs: > $700 million market capitalisation upon listing (Rose & Solomon, 2016). The results for IPO capital raised between 1 January 1999 to 31 December 2019 are summarised in Table 3.…”

“…We summarise IPO clusters as follows: over the past two decades to December 2019, New South Wales (NSW) and Victoria (VIC) dominate in terms of total IPO amounts listed (47% and 33%, respectively). Western Australia dominated the three regional listing offices in the number of listed companies, undertaking 42% of all IPOs (95% of which are classified as small/micro sized IPOs), however with only 9.8% of the market capitalisation, indicates a comparatively concentrated group of smaller, (predominately junior, early‐stage mining) listed companies (Gilbey et al, 2021). Additionally, during the ‘dot‐com’ years, and from 2014 onwards, WA’s small‐cap, early‐stage tech sector raised similar amounts to junior mining, indicating that cross‐disciplinary capital raising capabilities, or factors other than industry specialty might be at play.…”