IPO Pricing Phenomena: Empirical Evidence Of Behavioral Biases

Adams, Mike; Thornton, Barry; Hall, George R.

doi:10.19030/jber.v6i4.2412

Cited by 11 publications

(3 citation statements)

References 30 publications

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“…Abnormal returns generally result from underpricing of offerings by the issuing firm. Researchers have broadly summarized three explanations to analyze IPO underpricing: information asymmetry (Ritter & Welch, 2002), information transmission theory (Aggarwal et al, 2002), and investor overreaction (Adams et al, 2008). Specifically, with regard to information asymmetry, the greater the degree of information asymmetry between investors and issuers or underwriters, the larger the discount offered by the issuing firm to attract investors.…”

Section: Introductionmentioning

confidence: 99%

Information Transparency, Corporate Governance, And Convertible Bonds

Lee

2014

JABR

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Information transparency is a popular topic in capital markets. A firms corporate governance policy, which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors. In this paper, we numerically analyze: (a) the effect of the composition of the board structure on corporate information transparency under the code law system, and (b) the effect of information transparency on the initial return rate of convertible bonds. The results of our study revealed that the board structure affects corporate information disclosure policies under the code law system. Specifically, CEO duality tends to bring about lower information transparency, whereas better information transparency emanates from a higher proportion of independent directors. However, there is a lack of conclusive evidence to support the view that the shareholdings of directors and large shareholders are correlated with information transparency. We also show numerically that greater information transparency combined with lesser information asymmetry (between insiders and outsiders) leads to a lower initial return rate of convertible bonds.

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Section: Introductionmentioning

confidence: 99%

Information Transparency, Corporate Governance, And Convertible Bonds

Lee

2014

JABR

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“…Studies mentioned in this section have shown both IPO under-pricing and over-pricing phenomena. Adams, Thornton, and Hall (2008) said that IPO share prices were underpriced by 10% -15 % consistently after public. If IPOs are underpriced, the issuing companies of IPOs lose money on the table.…”

Section: Review Of Literaturementioning

confidence: 99%

Mutual Fund and Foreign Institutional Investors: Pre and Post Crisis Dynamics

De¹,

Ghosh²

2019

ijrcm

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; Included in UGC's List of Recommended Journals) is a double blind peer reviewed refereed journal that aims at the dissemination and advancement of research in Capital Markets. The aim of the Journal is to provide a platform to researchers, practitioners, academicians, and professionals associated with the field of Capital Markets. To encourage and promote research across a wide breadth of areas pertaining to Capital Markets, the Indian Journal of Research in Capital Markets invites submissions of original, empirical, and theoretical papers as well as case studies and book reviews covering diverse areas of Capital Markets that are listed below: We firmly believe that your contribution will enrich the academic, intellectual content of the journal, along with opening up of new vistas of research.

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“…These problems, however, are elegantly solved by behavioural finance. In particular, Adams et al (2011) give several possible explanations from the angle of both the issuer and the underwriter.…”

Section: Introductionmentioning

confidence: 99%

COVID-19: the impact of the pandemic fear on IPO underpricing

Fedorova

Chertsov²,

Kuzmina³

2022

JFRA

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Purpose The purpose of this study is to assess how the information disclosed in prospectuses impacted the initial public offering (IPO) underpricing at a time of high government interference amid the ongoing pandemic. Design/methodology/approach The design of this study has several tracks, namely, a macro-level track, which is represented by the government measures to halt the pandemic; a micro-level track, which is followed by textual analysis of IPO prospectuses; and, finally, a machine learning track, in which the authors use state-of-the-art tools to improve their linear regression model. Findings The authors found that strict government anti-COVID-19 measures indeed contribute to the reduction of the IPO underpricing. Interestingly, the mere fact of such measures taking place is enough to take effect on financial markets, regardless of the resulting efficiency of such measures. At the micro-level, the authors show that prospectus sentiments and their significance differ across prospectus sections. Using linear regression and machine learning models, the authors find robust evidence that such sections as “Risk factors”, “Prospectus summary”, “Financial Information” and “Business” play a crucial role in explaining the underpricing. Their effect is different, namely, it turns out that the more negative “Risk factors” and “Financial Information” sentiment, the higher the resulting underpricing. Conversely, the more positive “Prospectus summary” and “Business” sentiments appear, the lower the resulting underpricing is. In addition, we used machine learning methods. Consisting of more than 580 IPO prospectuses, the study sample required modern and powerful machine learning tools like Isolation Forest for pre-processing or Random Forest Regressor and Light Gradient Boosting Model for modelling purposes, which enabled the authors to gain better results compared to the classic linear regression model. Originality/value At the micro level, this study is not confined to 2020, but also embraces 2021, the year of the record number of IPOs held. Moreover, in this paper, these were prospectuses that served as a source of management sentiment. In addition, the authors used a tailor-made government stringency index. At the micro level, basing the study on behavioural finance hypotheses, the authors conducted both separate and holistic analysis of prospectuses to assess investors’ reaction to different aspects of IPO companies as well as to the characteristics of the IPOs themselves. Lastly, the authors introduced a few innovations to the research methodology. Textual analysis was conducted on a corpus of prospectuses included in a study sample. However, the authors did not use pre-trained dictionaries, but instead opted for FLAIR, a modern open-source framework for natural language processing.

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IPO Pricing Phenomena: Empirical Evidence Of Behavioral Biases

Cited by 11 publications

References 30 publications

Information Transparency, Corporate Governance, And Convertible Bonds

Information Transparency, Corporate Governance, And Convertible Bonds

Mutual Fund and Foreign Institutional Investors: Pre and Post Crisis Dynamics

COVID-19: the impact of the pandemic fear on IPO underpricing

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