International differences in oversubscription and underpricing of IPOs

Chowdhry, Bhagwan; Sherman, Ann E.

doi:10.1016/0929-1199(96)00002-8

Cited by 148 publications

(111 citation statements)

References 11 publications

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“…For instance, although the findings from this study show that high-demand IPOs perform better on the first trading day, the results on high-demand IPOs' long-run underperformance conflict with the prediction suggested by the information asymmetry hypothesis, and the hypothesis proposed by Chowdhry and Sherman (1996), who establish a positive relation between investor demand (oversubscription) and IPO underpricing, is unable to explain the difference in the long-run performance between low-and high-demand IPOs. Indeed, a large oversubscription of a severely underpriced firm's shares is not likely to impact the firm's long-run performance because opening day trading could rapidly correct the mistake in the IPO's initial pricing.…”

Section: Discussioncontrasting

confidence: 99%

“…Focusing mainly on the causes of IPO underpricing, the theoretical work of Rock (1986), Aggarwal and Rivoli (1990) and Chowdhry and Sherman (1996) provides predictions regarding this demand-performance relation. According to Rock (1986), informed investors with superior information have the ability to distinguish between "good" and "bad" IPOs.…”

Section: Introductionmentioning

confidence: 99%

“…Rock's hypothesis implicitly suggests, therefore, that high-demand IPOs exhibit relatively higher returns both during the first days of trading and in the long run. Chowdhry and Sherman (1996) also posit a positive relation between investor demand and underpricing of IPOs, arguing that a severely underpriced IPO will attract a large number of investors who seek to exploit the resulting short-run profit opportunities. Their model suggests that high-demand IPOs experience a relatively large positive return on the first post-IPO trading day, but that the difference in post-issuance performance between high-and low-demand IPOs occurs only in the short run, with mispricings potentially corrected rapidly in opening-day trading.…”

Section: Introductionmentioning

confidence: 99%

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Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

Agarwal

Liu

Rhee

2008

Journal of International Financial Markets, Institutions and Mo

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In this study, we examine the relation between pre-offering demand and aftermarket performance of IPO firms in the Hong Kong stock market. We find that IPOs with high investor demand realize large positive initial returns but negative long-run excess returns, while IPOs with low investor demand realize negative initial returns but positive long-run excess returns. This result suggests that (1) pre-offering demand for IPOs is at least partly driven by investors' over-or underreactions to information about firms' post-issuance prospects, and (2) while high-and low-demand IPOs are not priced at their intrinsic values in early aftermarket trading, eventually their true values are reflected in their pricing.

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Section: Discussioncontrasting

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

Agarwal

Liu

Rhee

2008

Journal of International Financial Markets, Institutions and Mo

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“…In addition to these six main explanatory variables, eight control variables are selected, consistently to what is investigated in the major IPO literature (Leland and Pyle, 1977;Banz, 1981;Reinganum, 1981;Ritter, 1984;Beatty and Ritter, 1986;McGuinnes, 1992;Grinblatt and Hwang, 1989;Clarkson and Simunic, 1994;Chowdry and Sherman, 1996;Wong and Uddin, 2000;Kiymaz, 2000;Loughran and Ritter, 2003;Ghosh, 2005;Gleason, Johnston and Madura, 2008;Uddin, 2001): size (SIZE); age (AGE); retained ownership (RO); offering size (GP); belonging to financial industry (FIN); aftermarket risk (BETA); time length of the offering (LGP); greenshoe option (GS).…”

Section: Hypotheses Developmentmentioning

confidence: 99%

IPO underpricing and aftermarket performance in Italy

Dell’Acqua

Etro

Tetia

et al. 2015

JEFS

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We analyse a sample of 129 Initial Public Offerings (IPOs) on the Italian Stock Exchange from January 2001 to December 2012. Results confirm the presence of underpricing in two thirds of the sample offerings but with an average level of 6.75% that is far below previous studies. Moreover we provide detailed temporal insights to show that the phenomenon is timevarying, albeit our sample does not show a positive correlation with hot market periods only. The average stock performance 30 days after the listing is lower than average first day return, evidence that is mainly explained by temporary actions of price support by underwriters. Finally, through a series of multivariate regression analyses we find that various factors exercise an influence on the IPO underpricing level, specifically: firm size, aftermarket risk, market demand, financial crisis and shares retention by existing shareholders.

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“…8. Several papers discuss the phenomenon of IPO underpricing in various countries, including Loughran et al (1994) and Chowdhry and Sherman (1996). 9.…”

Section: Discussionmentioning

confidence: 99%

An empirical analysis of the efficiency of online auction IPO processes and traditional IPO processes

Hensel

2009

International Journal of Managerial Finance

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Purpose -The purpose of this paper is to examine whether the online auction mechanism in the USA is more effective at pricing initial public offerings (IPOs) than the traditional book building process. Design/methodology/approach -The analysis compares the performance of online auction IPOs with traditional IPOs issued in the same industry area and in the same year to assess the differences in first day mispricing and its persistence. The paper compares the characteristics of firms choosing the auction process relative to the traditional process. It also uses regression models to examine whether online auction IPOs had a significantly lower first day price increase than traditional IPOs. Findings -The results indicate that for 60 percent of the auction IPOs, over 40 percent of the traditional IPOs issued in that year and in that three-digit Standard Industry Classification (SIC) area had greater mispricing. The mispricing of online auction IPOs relative to traditional IPOs persist over time for 50-80 percent of online auction IPOs. Regression analyses controlling for industry effects, year effects, size of the issue, and type of traditional underwriter (low, medium, and high volume underwriters) suggest that the auction's first day price surges are not significantly lower than those of traditional underwriters. Moreover, high volume traditional underwriters have statistically significantly higher first day price surges than low volume traditional underwriters, supporting the theory that they intentionally misprice to benefit their preferred clients. Firms choosing the auction process tend to be smaller in terms of the number of shares of their IPO and their annual sales than firms choosing the traditional IPO process. There is some overlap in industry sector and age, although this varies by year. Originality/value -This paper suggests that the auction process may not be as efficient in pricing IPOs as was initially intended and that there are opportunities for further innovation and improvement.

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International differences in oversubscription and underpricing of IPOs

Cited by 148 publications

References 11 publications

Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

IPO underpricing and aftermarket performance in Italy

An empirical analysis of the efficiency of online auction IPO processes and traditional IPO processes

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