Underpricing, stock allocation, ownership structure and post-listing liquidity of newly listed firms

Pham, Peter K.; Kalev, Petko S.; Steen, Adam

doi:10.1016/s0378-4266(02)00241-8

Cited by 95 publications

(113 citation statements)

References 43 publications

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“…While control retention is generally an important issue in IPO decisions (Brau & Fawcett, 2006;Alavi et al, 2008), it is particularly likely that, in a closely-held ownership environment such as Malaysia, pre-IPO owners are concerned about the potential loss of control following the partial transfer of ownership (Nagata & Hachiya, 2006). One way to alleviate such concerns is to allocate shares to many small investors through underpricing, thereby reducing both the threat of takeover and the monitoring by large block holders (Brennan & Franks, 1997;Pham et al, 2003;Alavi et al, 2008). Companies in which post-IPO retained ownership is relatively low are likely to be more concerned about loss of control and outside monitoring.…”

Section: Retained Ownershipmentioning

confidence: 99%

Earnings Management in Malaysian IPOs: The East Asian Crisis, Ownership Control and Post-IPO Performance

2009

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We find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive income-increasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. Professor of Accounting and Finance at the University of Stirling. We appreciate the very helpful, constructive comments from Rashad Abdel-Khalik (the editor) and the two anonymous referees who have contributed significantly in helping improve the structure of the paper and the arguments therein. We have also benefited from the comments of Chris Veld, participants at the EAA Annual Conference at University College Dublin and the BAA Annual Conference at Royal Holloway, University of London. The financial support of the Malaysian government (JPA) and the Universiti Utara Malaysia is gratefully acknowledged (for Nurwati A. Ahmad-Zaluki). We thank the Public Information Centre, Kuala Lumpur Stock Exchange (Bursa Malaysia) for the usage of the library and Brahim Saadouni from the University of Manchester for the provision of his PACAP database and his collection of Malaysian prospectuses. The usual disclaimer applies. JEL classification: G32 Earnings management in Malaysian IPOs: the EastAsian crisis, ownership control and post-IPO performance AbstractWe find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive incomeincreasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. JEL classification: G32

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Section: Retained Ownershipmentioning

confidence: 99%

Earnings Management in Malaysian IPOs: The East Asian Crisis, Ownership Control and Post-IPO Performance

2009

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“…Empirical results from examining IPO underpricing are ambiguous. Pham et al (2003) find a negative association between shareholdings of the top 20 investors in Australian IPOs. Shehryar and Javid (2014) for Pakistan and Chen and Strange (2004) for China find a negative relation between ownership concentration and underpricing, supporting the ownership dispersion hypothesis.…”

Section: Empirical Literaturementioning

confidence: 72%

“…We follow the methodology of Pham et al (2003) to compare the relationship between underpricing and ownership structure for both categories of IPOs. We use characteristics of private firms and public entities such as subscription ratio, return on assets, size, and risk as factors that influence ownership structure.…”

Section: Ownership Structure and Underpricingmentioning

confidence: 99%

Performance and capital structure of IPOs in Pakistan from 2000 to 2015

Javid

Malik

2016

Financ Innov

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Background: When a privately owned firm or privatized government entity raises capital by selling its stocks for the first time to general public, is known as initial public offering (IPO). The underpricing phenomenon and ownership structure are important characteristics of IPO process that significantly affect the short-run and long-run performance of private firm and privitized entity. This study compares the short-and long-run performance, and factors affecting these performances for both private IPOs and privatized IPOs in Pakistan. It further investigates the relationship between capital structor and initial underpricing for both group of IPOs.

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“…Reese (1998) also showed that there is a positive relationship between underpricing and post-listing trading turnover for up to three years after listing and suggested financial media coverage as a possible explanation. Pham et al (2003) and Li et al (2005b) provide evidence that a higher level of underpricing leads not only to increased trading turnover but also lower bid-ask spreads. Pham et al (2003) argue that this relationship is established through the mediation of the ownership structure formed after the allocation process.…”

Section: Underpricing As a Means Of Promoting After-market Liquidity:mentioning

confidence: 99%

“…Pham et al (2003) and Li et al (2005b) provide evidence that a higher level of underpricing leads not only to increased trading turnover but also lower bid-ask spreads. Pham et al (2003) argue that this relationship is established through the mediation of the ownership structure formed after the allocation process. They also find that overpriced IPOs are likely to have less debt and higher book-to-market ratios.…”

Section: Underpricing As a Means Of Promoting After-market Liquidity:mentioning

confidence: 99%

Special Acknowledgment

2001

Petroleum Geology of the South Caspian Basin

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Abstractased on a sample of 15 European countries, this survey analyses various features of the European IPO (Initial Public Offering) market over the period from 1995 to 2004: listing requirements, IPO-mechanism choices, performance and secondary market liquidity.First, the comparison of national primary market regulations, in spite of the commonly observed segmentation between Main, Parallel and New Markets, shows a wide diversity in listing requirements and reveals that the primary market's mechanisms are almost always monitored by investment banks, which then control the initial pricing and allocation of new issues. The examination of issuers' practices looks at the increase in the different types of IPO mechanisms in the late nineties and the widespread use of the book-building mechanism nowadays. Second, our empirical analysis of IPO short-term and long-term performance confirms, with a few exceptions, widely recognised patterns, but also show discrepancies between countries, periods, sector and primary listing mechanisms. The average initial underpricing amounts to 22% over our pan-European sample and is observed at various levels in each of the 15 countries of the sample. Empirical evidence on long-term performance is less clear. Results are not benchmark-dependent but sometimes differ from one measurement method to another. However, in line with previous studies, significant underperformance is found at the 3-year horizon with all methodologies and in all countries, except Greece and Portugal.Finally, using a sample of IPOs launched on Euronext between 1995 and 2004, our study examines the relationship between initial returns and post-listing liquidity in the short and in the long-run. We support the 'illiquidity-compensation hypothesis'. Initial underpricing is positively linked to information asymmetry in the after-market. It produces higher turnover immediately after the IPO but has no effect on trading volumes after the first year of trading, so that this liquidity effect cannot be put down to ownership structure but is more likely attributable to the interest underpriced stocks generate.

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Underpricing, stock allocation, ownership structure and post-listing liquidity of newly listed firms

Cited by 95 publications

References 43 publications

Earnings Management in Malaysian IPOs: The East Asian Crisis, Ownership Control and Post-IPO Performance

Earnings Management in Malaysian IPOs: The East Asian Crisis, Ownership Control and Post-IPO Performance

Performance and capital structure of IPOs in Pakistan from 2000 to 2015

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