Evidence on the effect of ‘Claw-Back’ provisions on IPO share allocation and underpricing in Hong Kong

Vong, Anna P. I.; Trigueiros, Duarte

doi:10.1080/00036846.2017.1302067

Cited by 4 publications

(6 citation statements)

References 46 publications

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“…Over the years IPO underpricing has been theoretically attributed to asymmetric information (Beatty. & Ritter, 1986;Hou & Gao, 2017;Ljungqvist, 2005;Rock, 1986) behavioural theory (Ljungqvist, 2005;Loughran & Ritter, 2002) winner's curse (Yong, 2011(Yong, , 2013 bandwagon effect (Yong, 2011(Yong, , 2013) size effect (Yong, 2013) investor sentiment (Hou & Gao, 2017) corporate governance (Hou & Gao, 2017;Ng, 2014) underwriters' reputation (Beck, 2017;Jelic et al, 2001;Vong & Trigueiros, 2017) and underwriters' monopsony power (Chang, Chiang, Qian, & Ritter, 2017). Yatim (2008) noticed that the extent of IPO underpricing in Asia is greater than in more developed economies (Loughran.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Both Mazouz, Mohamed, Saadouni, and Yin (2017) and Vong and Trigueiros (2017) investigated the effect of 'Claw-Back' provisions on IPO share allocation and underpricing in Hong Kong. According to Mohamed-Arshad, Taufil-Mohd, and Ahmad-Zaluki (2016) the mandatory clawback provision requires the underwriters to redistribute the shares to retail investors instead of institutional investors and to openly reveal the allocation of shares made to different parties.…”

Section: Literature Reviewmentioning

confidence: 99%

“…According to Mohamed-Arshad, Taufil-Mohd, and Ahmad-Zaluki (2016) the mandatory clawback provision requires the underwriters to redistribute the shares to retail investors instead of institutional investors and to openly reveal the allocation of shares made to different parties. Meanwhile, Vong and Trigueiros (2017) discussed the clawback mechanism as a transfer of shares from institutional investors to the public. Prior to this clawback provision, retail investors had been subscribing to more overpriced IPOs than underpriced ones.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Prior to this clawback provision, retail investors had been subscribing to more overpriced IPOs than underpriced ones. Thanks to the introduction of this clawback provision though, the trend has since been reversed (Mohamed-Arshad et al, 2016) and Vong and Trigueiros (2017). The researchers also observed an increase in the adjusted initial returns for the retail investors after the imposition of the provision.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This finding suggests that the initiation of clawback has effectively curbed the winner's curse problem encountered by uninformed investors, incorporating an element of fairness into the IPO. Apart from that, Vong and Trigueiros (2017) also contended that the Rock's adverse selection model itself is incapable of justifying the underpricing phenomenon in Hong Kong. Instead, both the demand from informed investors and underwriters' reputation should be the bases for the explanation of the underpricing.Finally, Yong and Albada (2018) evaluated the role of underpricing and listing board in explaining heterogeneity of opinion regarding values of Malaysian IPOs.…”

Section: Literature Reviewmentioning

confidence: 99%

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2020

International Journal of Asian Social Science

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Using the initial returns (offer-to-close and offer-to-open), we investigate the influence of winner's curse, bandwagon effect, IPO lockup, size effect, and underwriters' reputation on Initial Public Offering (IPO) underpricing in Malaysia. Based on the sample size of 114 IPO firms listed on Bursa Malaysia from January 2010 to December 2017, the finding shows that the influence of size effect is significant on both types of initial returns, that the smaller the size of the firm, the higher the mean initial return gets. We interpret it as investors' demand for a more appealing initial return as compensation for the greater risk exposure when investing in a smaller firm. On the other hand, we found an insignificant result in terms of the relationship between the types of offer and the IPO initial returns. Thus our findings do not support the winner's curse theory which suggests that non-private placement is associated with a higher initial return due to the adverse selection problem. We also do not find any significant relationship between IPO lockup and underpricing. Nonetheless, underwriters' reputation is found to be negatively associated with the initial returns. This finding somehow agrees with the hypotheses made in the previous studies-where some claimed that underwriters with high reputation are able to reduce first-day initial return. Overall, the results indicate that investors keen on IPOs are still able to centre their decisions around the theories above in the quest for greater investment returns. Contribution/ Originality: This paper contributes to the existing literature by offering IPO issuers some key insights into the pros and cons of the IPO underpricing phenomenon. By measuring and analysing the initial returns, this paper gives shareholders a glimpse of what to expect on the very first day of trading.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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2020

International Journal of Asian Social Science

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Effect of geographical distance between underwriters and listed companies on IPO underpricing: Evidence from China's A-share market

Wang

Chai

Yan

et al. 2022

International Review of Economics & Finance

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Impact of anchor investors on IPO returns during pre-market and aftermarket: evidence from India

Gupta

Singh

Yadav

2019

JAMR

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Purpose The unique regulatory design of India provides us with the opportunity to disaggregate traditional initial public offering (IPO) underpricing into three categories: voluntary, pre-market and post-market. The presence of anchor investors in India makes it a compelling case to study. These individuals were introduced to bring transparency in the book building process, but their impact on pre-market and post-market underpricing was not foreseen. Therefore, the purpose of this paper is to evaluate the impact of anchor investors on the IPO underpricing after disaggregation and on the long-run performance of an IPO. Design/methodology/approach A sample covering 232 IPOs from a period of 2009–2018 is included. The empirical analysis explores the impact of various firm-specific as well as market-specific variables on IPO underpricing. The financial data for the empirical analysis are extracted from Prime database and websites of National Stock Exchange and Bombay Stock Exchange. To deal with the outliers effectively, this paper deploys “robust-regression.” Findings The study finds that investor’s subscription rate and voluntary underpricing impacts the pre-market but do not have any impact on the post-market while the age of the firm has a different impact on both the markets and the number of anchor investors have the same impact in both markets. Anchor investors’ participation increases the pre-market as well as post-market underpricing. Lastly, the long-term performance of IPOs backed by the anchor investors is high relative to the IPOs not subscribed to by the anchor investors. Originality/value This paper is believed to be the first attempt to study the impact of anchor investors on the disaggregated IPO underpricing. The findings of this study will have a great insight for the investors.

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Evidence on the effect of ‘Claw-Back’ provisions on IPO share allocation and underpricing in Hong Kong

Abstract: Evidence on the effect of Claw-Back provisions on IPO share allocation and underpricing in Hong Kong. Applied Economics. 49 (51), 5231-5244, which has been published in final form at

Cited by 4 publications

References 46 publications

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Effect of geographical distance between underwriters and listed companies on IPO underpricing: Evidence from China's A-share market

Impact of anchor investors on IPO returns during pre-market and aftermarket: evidence from India

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