The sharemarket performance of Australian venture capital-backed and non-venture capital-backed IPOs

Offer pricing of Australian industrial initial public offers

“…The mean raw underpricing of 11.87% is less than the 18.1% underpricing found by Ritter and Welch (2002) in the US for their 1995-1998 sub-period. The extent of raw underpricing for our sample is also lower than that found by Lee, Taylor and Walter (1996), How, Lam and Yeo (2002), and Da Silva Rosa, Velayuthen and Walter (2003).…”

“…The underpricing of initial public offers (IPOs) is a puzzle that has been the focus of a substantial theoretical and empirical literature. Ritter and Welch (2002) Australian industrial IPOs, Lee, Taylor and Walter (1996) find median raw underpricing of 10% and market index adjusted underpricing of 5.42%, while Da Silva Rosa, Velayuthen and Walter (2003) and How, Lam and Yeo (2002) report median raw underpricing of 12% and 15% respectively. Ritter and Welch (2002) contend that 'the solution to the underpricing puzzle has to lie in focusing on the setting of the offer price, where the normal interplay of supply and demand is suppressed by the underwriter.'…”

The use of the comparable firm approach in valuing Australian IPOs

“…The first measure is the classical definition of underpricing which measures the percentage of the difference between the first day closing price and the offer price. In line with Habib andLjungvist (1998) andDa Silva Rosa, Velayuthen, andWalter (2003), we argue that issuers only care about the classical measure of underpricing to the extent that it affects their net wealth. That is, the higher the proportion of their company the issuer is offering as part of the IPO, the greater incentives the issuer has to reduce underpricing.…”

The impact of venture capital backing on the corporate governance of Australian initial public offerings

“…First, Fleming (2004) finds that similar to international evidence in Cumming and MacIntosh (2003) and Giot and Schwienbacher (2007), Australian venture capitalists tend to take the best investments to market to generate a reputation for quality investing and thus generate higher returns from IPOs than from other exit strategies. Second, da Silva Rosa et al (2003) find that there is not a difference in underpricing between VC backed and non-VC backed IPOs. This is in contrast to earlier studies that provide evidence of lower underpricing for firms with VC backing in the US (e.g., Megginson and Weiss, 1991;Gompers, 1996) but similar to most of the recent evidence (see Marshall, 2004;Brau et al, 2004).…”