IPO Price Performance and Signaling

Authors: Chih-Hsiang Chang, I-Fan Ho

Abstract:

This study examines the credibility of the signaling as explanation for IPO initial underpricing. Findings reveal the initial underpricing and the long-term underperformance of IPOs in Taiwan. However, we only find weak support for signaling as explanation of IPO underpricing.

Keywords: Signaling, IPO initial underpricing, IPO long-term underperformance, Taiwan’s stock market.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1338050

References:

[1] J. G. McDonald and A. K. Fisher, “New-issue stock price behavior,” Journal of Finance, vol. 27, pp. 97-102, 1972.
[2] R. G. Ibbotson, “Price performance of common stock new issues,” Journal of Financial Economics, vol. 2, pp. 235-272, 1975.
[3] F. Allen and G. Faulhaber, “Signaling by underpricing in the IPO Market,” Journal of Financial Economics, vol. 23, pp. 303-323, 1989.
[4] T. Loughran and J. R. Ritter, “Why has IPO underpricing changed over time?” Financial Management, vol. 33, pp. 5-37, 2004.
[5] F. Kerins, K. Kutsuna, and R. Smith, “Why are IPOs underpriced? Evidence from Japan’s hybrid auction-method offerings,” Journal of Financial Economics, vol. 85, pp. 637-666, 2007.
[6] D. Chambers and E. Dimson, “IPO underpricing over the very long run,” Journal of Finance, vol. 64, pp. 1407-1443, 2009.
[7] G. C. Friesen and C. Swift, “Overreaction in the thrift IPO aftermarket,” Journal of Banking and Finance, vol. 33, pp. 1285-1298, 2009.
[8] C.-H. Chang, “IPO underpricing: A social comparison perspective,” International Review of Economics and Finance, vol. 20, pp. 367-375, 2011.
[9] I. Welch, “Seasoned offerings, imitation costs, and the underpricing of initial public offerings,” Journal of Finance, vol. 44, pp. 421-449, 1989.
[10] J. R. Ritter, “The long-run performance of initial public offerings,” Journal of Finance, vol. 46, pp. 3-27, 1991.
[11] M. Levis, “The long-run performance of initial public offerings: The UK experience 1980-1988,” Financial Management, vol. 22, pp. 28-41, 1993.
[12] K. Rock, “Why new issues are underpriced,” Journal of Financial Economics, vol. 15, pp. 187-212, 1986.
[13] L. M. Benveniste and P. A. Spindt, “How investment bankers determine the offer price and allocation of new issues,” Journal of Financial Economics, vol. 24, pp. 343-361, 1989.
[14] R. Thaler, “Mental accounting and consumer choice,” Marketing Science, vol. 4, pp. 199-214, 1985.
[15] T. Loughran and J. R. Ritter, “Why don’t issuer get upset about leaving money on the table in IPOs?” Review of Financial Studies, vol. 15, pp. 413-443, 2002.
[16] J. B. Kim, I. Krinsky, and J. Lee, “The aftermarket performance of initial public offerings in Korea,” Pacific-Basin Finance Journal, vol. 3, pp. 429-448, 1995.
[17] R. B. Carter, F. H. Dark, and A. K. Singh, “Underwriter reputation, initial returns, and the long-run performance of IPO stocks,” Journal of Finance, vol. 53, pp. 285-311, 1998.
[18] K. Kutsuna, J. K. Smith, and R. L. Smith, “Public information, IPO price formation, and long-run returns: Japanese evidence,” Journal of Finance, vol. 64, pp. 505-546, 2009.
[19] H. An and K. C. Chan, “Credit ratings and IPO pricing,” Journal of Corporate Finance, vol. 14, pp. 584-595, 2008.
[20] L. P. Hsueh and Y. A. Liu, “Market anticipation and the effect of bond rating changes on common stock prices,” Journal of Business Research, vol. 24, pp. 225-239, 1992.
[21] A. Kalay, “Signaling, information content, and the reluctance to cut dividends,” Journal of Financial and Quantitative Analysis, vol. 15, pp. 855-869, 1980.
[22] K. John and J. Williams, “Dividends, dilution, and taxes: A signaling equilibrium,” Journal of Finance, vol. 40, pp. 1053-1070, 1985.
[23] M. Miller and K. Rock, “Dividend policy under asymmetric information,” Journal of Finance, vol. 40, pp. 1031-1051, 1985.
[24] S. Ross, “The determination of financial structure: The incentive-signaling approach,” Bell Journal of Economics, vol. 8, pp. 23-40, 1977.
[25] E. Talmor, “Asymmetric information, signaling, and optimal corporate financial decisions,” Journal of Financial and Quantitative Analysis, vol. 16, pp. 413-435, 1981.
[26] K. John, “Risk-shifting incentives and signaling through corporate capital structure,” Journal of Finance, vol. 42, pp. 623-641, 1987.
[27] A. Hingorani, K. Lehn, and A. K. Makhija, “Investor behavior in mass privatization: The case of the Czech voucher scheme,” Journal of Financial Economics, vol. 44, pp. 349-396, 1997.
[28] Y.-L. Cheung, Z. Ouyang, and W. Tan, “How regulatory changes affect IPO underpricing in China,” China Economic Review, vol. 20, pp. 692-702, 2009.
[29] S. Paleari and S. Vismara, “Over-optimism when pricing IPOs,” Managerial Finance, vol. 33, pp. 352-367, 2007.
[30] Y. Hsu and C.-Y. Shiu, “The overconfidence of investors in the primary market,” Pacific-Basin Finance Journal, vol. 18, pp. 217-239, 2010.
[31] E. C. Chang, Y. Luo, and J. Ren, “Cross-listing and pricing efficiency: The informational and anchoring role played by the reference price,” working paper, University of Hong Kong, 2011.