Signaling and the Valuation of Unseasoned New Issues

Downes, David H.; Heinkel, Robert

doi:10.1111/j.1540-6261.1982.tb01091.x

Cited by 255 publications

(98 citation statements)

References 6 publications

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“…This problem is especially magnified in situations where information asymmetry between users and suppliers of capital is high. To overcome this problem, the original vendors can signal the quality of their firm through the level of ownership retention whereby a higher level of retained ownership signals higher quality (Downes & Heinkel, 1982). It is likely that higher quality firms would pose a greater competitive threat, thus, the third specific hypothesis is (in alternative form):…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 96%

Competitive valuation effects of Australian IPOs

McGilvery¹,

Faff

Pathan

2012

International Review of Financial Analysis

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 96%

Competitive valuation effects of Australian IPOs

McGilvery¹,

Faff

Pathan

2012

International Review of Financial Analysis

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“…Accordingly, an auditor type dummy variable (AUDITOR it ) equals 1 if an IPO firm is audited by a big-five firm, and 0 if audited by a non-big-five firm. 12 5. Insider stock holdings (INS it ): Prior research indicates that insider stockholdings signal insiders' expectations with respect to firm value (Leland and Pyle, 1977;Downes and Heinkel, 1982). INS it denotes insider stock holdings as a percentage of total outstanding shares at the end of the IPO year.…”

Section: Independent Variablesmentioning

confidence: 99%

IPO anomalies and innovation capital

Chin

Lee

Kleinman

et al. 2006

Rev Quant Finan Acc

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Innovation capital are typically expensed and/or unrecognized as assets under current generally accepted accounting principles. This results in accounting-related information asymmetry. This paper examines the association of innovation capital (as measured here by the proxies of R&D expenditures and granted patents) and initial public offerings (IPO) anomalies. These anomalies include initial IPO underpricing, duration of honeymoon (a distinct feature of the Taiwanese IPO environment), and long-term performance. The theoretical model underlying this research is a signaling model. The results indicate that more innovative firms are more likely to be underpriced, and have longer honeymoon periods than less innovative firms. Further, the more innovative firms have positive and growing long-term market-adjusted returns. This stands in contrast to the declining long-term stock performance of initial public offering firms that is evidenced in the literature. We conclude that pre-IPO research and development expenditures disclosed in the IPO prospectus, official monthly reports of newly developed patents released to the public, and the frequency of patent citations significantly signal both underpricing and future market performance of IPO firms in Taiwan. Copyright Springer Science + Business Media, LLC 2006Anomalies, Initial public offerings, Innovation capital, Patent, R&D, Signaling,

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“…We include the change in earnings given the well-documented association of this variable with stock returns (Kothari 2001). The audit qualifications are included as an additional explanatory variable because it is the variable of interest and its 25 We also used an offer values model that was based on valuation models that have been estimated in prior empirical IPO studies such as Downes and Heinkel (1982), Ritter (1984), and Clarkson et al (1991Clarkson et al ( , 1992. These models draw from the CAPM-based IPO valuation theory of Leland and Pyle (1977).…”

Section: Relevance Of Quantifiable Audit Qualifications 525mentioning

confidence: 99%

The relevance of quantifiable audit qualifications in the valuation of IPOs

et al. 2007

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How useful are audit qualifications to financial statement users? We analyze a sample of 204 firms that went public at the Athens Stock Exchange over the period 1987-2002. For 149 of these firms, auditors report quantitative estimates of the amount by which assets are overstated and/or liabilities are understated in reported financial statements. We find that underwriters and their affiliated analysts do not incorporate the negative information provided by these qualifications into offer prices and earnings forecasts. Investors, however, appear to efficiently impound the negative implications of the audit qualifications into stock market prices within the first day of trading. The results suggest that underwriters tend to align their interests with the interests of their clients, the old stockholders, at the expense of the new stockholders. They also suggest that the practice of reporting quantifiable qualifications in audit reports is valuable to investors given that they are disclosed by an expert.

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Signaling and the Valuation of Unseasoned New Issues

Cited by 255 publications

References 6 publications

Competitive valuation effects of Australian IPOs

Competitive valuation effects of Australian IPOs

IPO anomalies and innovation capital

The relevance of quantifiable audit qualifications in the valuation of IPOs

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