An Overview of IPO Research in Asia What Is Next

Pacific-Basin Finance Journal 15 (2007) 253 275
www.elsevier.com/locate/pacfin
A review of IPO research in Asia: What's next?

Othman Yong
Faculty of Economics and Business, Universiti Kebangsaan Malaysia
Received 22 May 2006; accepted 29 September 2006
Available online 1 December 2006
Abstract
This paper examines the current status of research on IPOs in general, with special focus on Asian IPOs.
As in the case of U.S. IPOs, most past studies on Asian IPOs deal with the issue of under-pricing in IPOs
and the factors, usually unique to Asian IPOs, that can explain the levels of the IPO under-pricing. Studies
on long-term IPO performances are also carried out with results not always consistent with long-term
underperformance observed in the U.S. In general, research on Asian IPOs is still quite preliminary with
many IPO phenomena discovered in the U.S. are not fully investigated. This paper also suggests some
possible areas of IPO research in the future.
2006 Elsevier B.V. All rights reserved.
JEL classification: G12; G14; G24; G32
Keywords: Initial public offering; Asian IPOs; Under-pricing; Capital market
1. Introduction
In general, the IPO literature documents that there are positive initial returns (usually measured
as percentage change from offer price of IPO to the closing price on the first day of trading) both
in the U.S. and international markets. This gives rise to a phenomenon referred to as the IPO
puzzle or specifically the under-pricing of IPOs puzzle. When after-market returns (usually for a
period that varies from 1 month to 5 years) are measured, the abnormal returns generally become
insignificant or negative. The short-run and long-run performances of IPOs are also the most
frequently research topic on Asian IPOs.
This paper is designed to review the status of research in Asian IPOs, with specific focus on
short-term under-pricing and long-run performance of IPOs. The rest of the paper is organized as
follows. Section 2 discusses the short-term under-pricing of Asian IPOs, while Section 3 discusses
the after-market and long-term performances of Asian IPOs. Section 4 presents the explanations
E-mail address: othmanyo@pkrisc.cc.ukm.my.
0927-538X/$ - see front matter 2006 Elsevier B.V. All rights reserved.
doi:10.1016/j.pacfin.2006.09.001
254
O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275
for the under-pricing phenomenon. Section 5 continues with explanations for the long-term underperformance. Section 6 discusses issues relevant to Asian IPOs. Section 7 touches on other
relevant issues. Section 8 concludes the paper, and suggests future areas of research on Asian IPOs.
2. Short-term under-pricing of Asian IPOs
The existence of under-pricing phenomenon for U.S. IPOs is well documented in the literature.
A comprehensive review can be found in Ibbotson and Ritter (1995) and Ritter (2003). A
comparative study by Jenkinson (1990) examines the performance of IPOs in Japan as well as IPOs
in the U.S. and the U.K., and concludes that IPOs in these countries are systematically priced at a
discount relative to their subsequent trading price; in the U.S. the discount is around 10% while in
the U.K., it is around 7%. In contrast, the Japanese IPOs rise in price, on average, by nearly 55%
after 1 week. Hamao et al. (2000) find that Japanese IPOs in which the lead venture capitalist is also
the lead underwriter have higher first-day returns than other venture capital-backed IPOs.
Loughran et al. (1994) provide a comprehensive survey of the companies going public in 25
countries, including 7 Asian countries (with an average initial return of 17.6% for Hong Kong;
32.5% for Japan; 78.1% for Korea; 80.3% for Malaysia; 27.0% for Singapore; 45.0% for Taiwan;
and 58.1% for Thailand). They also suggest that the move by East Asian countries to reduce
regulatory interference in the setting of offer prices should result in less under-pricing of IPOs in
the 1990s compared to the 1980s. Ritter (2003) reports the extent of under-pricing in 38 countries,
including 11 Asian countries (with an average initial return of 256.9% for China; 15.9% for Hong
Kong; 35.3% for India; 15.1% for Indonesia; 28.4% for Japan; 74.3% for Korea; 104.1% for
Malaysia; 22.7% for the Philippines; 31.4% for Singapore; 31.1% for Taiwan; and 46.7% for
Thailand). In general, Ritter reports that the average initial returns of Asian IPOs are significantly
higher than the average initial return of U.S. IPOs.
Dawson (1987) reports the market-adjusted average initial returns for 21 IPOs in Hong Kong
(13.8%), 39 IPOs in Singapore (39.4%), and 21 IPOs in Malaysia (166.6%) for the period 1978
1983. Yong (1997) reports an average initial return of 75.0% for 224 Malaysian IPOs for the
period 19901994. Sullivan and Unite (2001) report an average initial return of 22.7% for 104
Philippine IPOs for the period 19871997. Wethyavivorn and Koo-Smith (1991) find an average
initial return of 58.1% for 32 Thai firms for the period 19881989. Chi and Padgett (2005), using
668 IPOs for the period January 1996December 2000, find that the average under-pricing of
Chinese IPOs is 129.2%. Other studies on individual countries in Asia include McGuinness
(1992) for Hong Kong; Kim and Lee (1990), Lim (1992) and Kim et al. (1993) for Korea; Mok
and Hui (1998) and Su and Fleisher (1999) for China; Hwang and Jayaraman (1993), Pettway and
Kaneko (1996) and Cai and Wei (1997) for Japan; Paudyal et al. (1998) and Jelic et al. (2001) for
Malaysia; and Koh and Walter (1989) and Lee et al. (1996) for Singapore.
In a related issue, Cliff and Denis (2005) examine the relation between IPO under-pricing and
the post-IPO analyst coverage. They find that there is a significant positive relation between
under-pricing analyst coverage by the lead underwriter, which is consistent with the hypothesis
that under-pricing is, in part, compensation for expected post-IPO analyst coverage. This kind of
research can still be carried out in Asia.
3. After-market and long-term performances of Asian IPOs
Ritter (1991) shows that IPOs in the U.S. under-perform other firms of the same size (based on
market capitalization) by an average of 3.8% during the 5 years after the first day of trading. When
255
style matching (style matches are based upon size (market capitalization) and book-to-market
matching) is used, however, the underperformance shrinks to 2.2% per year. Loughran and Ritter
(1995) report that the average buy- and-hold three-year and five-year returns for the U.S. IPOs are
8.4% and 15.7% respectively, compared to 35.3% and 66.4% respectively for a control sample of
non-issuers, matched by firm size and industry.
Purnanandam and Swaminathan (2004), using a sample of more than 2000 relatively large
capitalization IPOs from 1980 to 1997, examine the pricing of IPOs using comparable firms, and
find that, on average, IPOs have an offer price 50% higher than predicted on the basis of industry
peers. What is more interesting is that the more over-priced the IPO is relative to its comparables,
the worse is its long-term performance.
Pukthuanthong and Walker (2005) examine the long-term performance of IPOs, for windows
ranging from 6 months to 3 years, in relation to their use of stock options at the time of the initial
public offering. They find that IPO firms that have high use of stock options outperform those that
have low use of stock options from the lock-up period until 3 years after the issue.
Brav et al. (2006) examine the issue whether long-run average returns of equity issuers reflect
underperformance due to mispricing or the risk characteristics of the issuing firms. They study this
issue by examining how institutional lenders price loans of equity-issuing firms. They find that
equity-issuing firms' expected debt return is equivalent to the expected debt return of non-issuing
firms with similar characteristics, implying that institutional lenders perceive equity issuers to be as
risky as similar non-issuing firms. They also find that institutional lenders perceive small and high
book-to-market borrowers as systematically riskier than larger borrowers with low book-to-market
ratios, consistent with the asset pricing approach in Fama and French (1993). Overall, their findings
are consistent with risk-based explanations for the observed equity returns following IPOs and SEOs.
The long-term underperformance is not unique to the U.S. IPOs. In Hong Kong, McGuinness
(1993b) reports a significant market-adjusted return of 18.26% between the close of the first day
of trading and the 500th day of listing of Hong Kong IPOs for the period 19801990. Cai and Wei
(1997) report that five-year holding period returns are 62.1% for Japanese IPOs and 101.4% for
matched firms during the 19911992 period. On the other hand, Loughran et al. (1994) report that
high average raw returns during the 3 years after going public were earned in Japan (109.6%),
Korea (58.0%) and Singapore (22.5%); the market-adjusted returns were significantly lower for
Japan (9.0%) and Korea (2.0%) and negative for Singapore ( 9.2%). Sullivan and Unite (2001)
report an average raw return of 48.3% during the 3 years after going public for 104 Philippine
IPOs, for the period 19871997; the average market-adjusted return is 5.4%.
Hamao et al. (2000) find that in the long-run, venture capital-backed Japanese IPOs perform no
better than the other IPOs, with the exception of firms backed by independent venture capitalists
or foreign-owned venture capitalists. When venture capital holdings are broken down by their
institutional affiliation, they find that firms with venture backing from securities company
subsidiary do not perform significantly worse over a 3-year horizon than other IPOs. On the other
hand, they find that IPOs in which the lead venture capitalist is also the lead underwriter have
higher first-day returns than other venture capital-backed IPOs; this result suggests that conflicts
of interest influence the initial pricing, but not the long-term performance of Japanese IPOs.
Kim et al. (1995a) examine the after-market performance of 169 Korean IPOs during the
period 19851989, and find that the Korean IPOs outperform seasoned firms with similar
characteristics. They find that much of the over-performance takes place during the first month of
listing, and the long-run performance exclusive of the first month is not statistically different from
that of seasoned firms. They also find that the deregulation in 1988 had no impact on the longterm performance of Korean IPOs.
256
Yong (1997), using data of Malaysian IPOs from January 1990 to December 1994, reports that
the benefits of under-pricing do not accrue to the secondary market traders, either on the first day
or 7 days later. Yong et al. (2001), using Malaysian IPOs listed on the Main Board and the Second
Board of the Kuala Lumpur Stock Exchange (KLSE) between 1991 and 1995, find that the
average initial returns have no relation with the average annual returns over the longer-term
periods; the only exception is the negatively significant correlation between the average initial
returns and average annual returns over three-year period. Jelic et al. (2001), using 182 IPOs listed
on the KLSE Main Board for the period from January 1980 to December 1995, report that
Malaysian IPOs have positive and statistically significant long-term returns up to 3 years after
listing; the findings contradict the consensus of the IPO literature in the U.S. that documents a
significant negative long-term performance.
Other studies in Asia include Kim and Lee (1990) for Korea, Kunimura and Severn (1990) for
Japan and Dawson (1987) for Hong Kong and Singapore. They all find that there is no significant
under- or over-performance after the initial return. Dawson also examines Malaysian IPOs and
reports a positive market-adjusted average long-run performance (nine-month and one-year) of
18.2%.
4. Explanations for IPO under-pricing
Several hypotheses or models have been proposed to try to explain the existence of the IPO
under-pricing. In the early days, Baron (1982) proposes that an informational asymmetry between
the underwriters and the issuers causes the significant first-day return, due to the fact that the
underwriters possess superior information regarding the demand for the IPOs while the issuers are
not able to see the underwriters' distribution efforts. As a result of this situation, the underwriters
can minimize their efforts in selling the IPOs by offering them at discount. Some studies focus on
some specific factor (s) in explaining the under-pricing phenomenon. Beatty and Ritter (1986)
relate the level of ex-ante uncertainty surrounding the intrinsic value of an IPO to the level of
under-pricing; the higher the uncertainty level, the higher is the level of under-pricing.
The relative importance of these different models has also changed over time. In the 1980s,
Rock's (1986) winner's curse and the Benveniste and Spindt (1989) dynamic information
acquisition models are widely accepted in explaining much of the under-pricing. In the 1990s,
however, when the average initial returns were much higher, behavioral and agency explanations
of under-pricing can better explain the under-pricing. In Asia, most of the explanations discussed
here have yet to be tested. Many other explanations that are unique to Asian IPOs can still be
explored.
4.1. The winner's curse
With fixed-price offers, potential investors face adverse selection, or better known as
winner's curse problem as suggested by Rock (1986). Uninformed investors face a winner's
curse: if they get all of the shares which they ask for, it is because the informed investors do not
want them; thus, face with this adverse selection problem, the uninformed investors will buy if
IPOs are under-priced to compensate them for the bias in the IPO allocation. As pointed out by
Ritter (2003), even-though evidence from several countries indicates that large investors
(institutions) are better informed than small investors (individuals), the main winner's curse
problem is not that institutions crowd out individuals during hot offerings; instead, during hot
offerings, strong institutional demand makes it difficult for any institution to get shares, and
257
similarly, strong individual demand makes it difficult for any individual to get shares. Koh and
Walter (1989) test the Rock's model on Singaporean IPOs. In Singapore, Lee et al. (1999) report
that small investors are favored over large investors whenever there is strong excess demand.
Chowdhry and Sherman (1996) report that issuers in Hong Kong, Singapore, Malaysia,
Indonesia, India, Thailand, and Bangladesh tend to favor small over large investors. For example
in Hong Kong between 1986 and 1992, 85% of IPOs were allocated in a way that strictly favored
smaller orders. The reason for favoring small investors over large investors is often thought to be
some notion of fairness. Chowdhry and Sherman develop a model to show that such a policy is
consistent with revenue maximization by the issuing firm because it reduces the adverse selection
or the winner's curse problem. The intuition is that informed investors tend to place larger orders
than do uninformed investors even when they have the same wealth level.
4.2. Dynamic information acquisition
According to Benveniste and Spindt (1989), underwriters (where book building is used) may
under-price IPOs to induce regular (informed or institutional) investors to truthfully reveal their
valuations during pre-selling period, which can then be used to assist in pricing the issue. Those IPOs
for which the offer price is revised upwards will be more under-priced than those for which the offer
price is revised downward; this is also known as partial adjustment phenomenon (see Hanley, 1993).
4.3. Signaling
Allen and Faulhaber (1989), Grinblatt and Hwang (1989) and Welch (1989) propose that IPO
under-pricing is a mechanism for signaling firm quality, based on the notion that under-priced
IPOs leave a good taste with investors, allowing the issuers to have more successful seasoned
equity offerings (SEOs) in the future. However, studies such as Michaely and Shaw (1994), find
that the hypothesized relation between initial returns and subsequent seasoned new issues is not
present.
Firth and Liau-Tan (1997) find that there is support for the signaling model in explaining the
level of IPO under-pricing in Singapore. However, Chi and Padgett (2005), using 668 Chinese
IPOs where over 90% of them are partial privatization IPOs (PIPOs), show that during
privatization, the government does not send signals on the quality of the issuers by under-pricing.
4.4. Informational cascades
If potential investors pay attention not only to their own information about a new issue, but
also to whether other investors are purchasing, according to Welch (1992), bandwagon effects or
also known as information cascades, may develop. If an investor sees that no one else wants to
buy, he may not buy even when he possesses favorable information. In order to prevent this
situation from happening, an issuer may have to under-price the IPO to induce the first few
potential buyers, and later induce a cascade in which all subsequent investors want to buy
irrespective of their own information.
4.5. The IPO as a marketing event
Closely related to the signaling idea is the notion that publicity is generated by a high first-day
return. Chemmanur (1993) proposes that this publicity could generate additional investor interest,
258
and Demers and Lewellen (2003) suggest that the publicity could generate additional product
market revenue from greater brand awareness.
4.6. Prospect theory
Prospect theory, developed by Kahneman and Tversky (1979), asserts that people focus more
on changes in their wealth compared to the level of their wealth. Loughran and Ritter (2002) apply
this to IPOs by noting that most of the money left on the table is by the minority of firms where
the offer price is revised upwards during the book-building process. For these issuing firms, the
executives are seeing a personal wealth increase relative to what they had expected based on the
file price range, even as they agree to leave money on the table. Loughran and Ritter argue that the
issuing firm's executives bargain less hard for a higher offer price in this circumstance than they
would otherwise. Loughran and Ritter also use prospect theory to explain why underwriters prefer
to under-price IPOs rather than charge higher gross spreads. Issuers pay less attention to the
opportunity cost of under-pricing than the direct cost of gross spreads. If underwriters can allocate
under-priced IPOs to buy-side clients who are competing for favorable allocations by overpaying
for other services, part of the profits that investors receive on under-priced IPOs will wind up in
the pockets of the underwriters.
4.7. Lawsuit avoidance
IPO under-pricing can reduce the frequency and severity of future class action lawsuits since
only investors who lose money are entitled to damages. Tinic (1988) and Hughes and Thakor
(1992) propose that under-pricing represents an insurance premium imposed by issuers and
underwriters to avoid lawsuits. As Ritter (2003) points out, fear of lawsuits has been mentioned as
one rationale for why Internet IPOs were under-priced so much in 19992000.
5. Explanations for the long-term underperformance of IPOs
A number of reasons have been advanced for the long-run returns on IPOs. One argument is
that, with costly short selling and heterogeneous beliefs among investors, the most optimistic
investors will determine the market price. As more information about a firm becomes available
over time, the divergence of beliefs will decrease, and the marginal holder will no longer be as
over-optimistic. Other explanations are discussed here.
5.1. The agency cost hypothesis
Jensen (1986) suggests that managers prefer to divert proceeds from IPO, or excess cash flow,
to investments in projects with negative net present value at the expense of shareholders' wealth
because of the divergence of interest between managers and shareholders. Consistent with this
hypothesis, McLaughlin et al. (1996) find that the long-term decline in operating performance is
greater for firms that have higher free cash flows.
5.2. Earnings management hypothesis
In essence it says that IPO firms exhibit unusually larger and significant gains in operating
performance compared to the industry average, 1 year prior to the offer date. This aggressive
259
earnings management is intended to lead investors to be overly optimistic about the issuer's
prospect. When initial earnings cannot be sustained, disappointed investors will revalue the firm
down to a more justified level.
5.3. The fads hypothesis
Shiller (1990) proposes this hypothesis from an investor's viewpoint. It says that contrary to
the rational expectation models, there are fads in the securities markets, and the IPO market overpricing is due to the presence of fads.
5.4. The window of opportunity hypothesis
Ritter (1991) and Loughran and Ritter (1995) propose this hypothesis from a manager's
viewpoint. It says that when a firm is substantially over-valued the manager will likely to issue
equity in order to take advantage of the opportune time to lower the cost of capital. From
observation, Loughran and Ritter find that equity-issuing firms perform poorly following the
issue. Using Japanese data, Kang et al. (1999) cast doubt on the temporary over-valuation
corrected by the market over time, as suggested by this hypothesis; they find that, using marketto-book equity ratio as proxy for over-valuation, under-performance persists even after the
market-to-book equity ratio is controlled for.
6. Issues relevant to Asian IPOs
6.1. Characteristics of IPO firms
What are the main characteristics of firms going public in Asia? An attempt to answer this
question is a comparative study between the Japanese and the U.S. IPOs conducted by Matsuda
et al. (1994). They find that Japanese IPO firms are older and larger, which is consistent with more
stringent listing requirements in Japan. Japanese firms are also much more often led by their
founders. The Japanese firms rely solely on the president for decision-making prior to the initial
public offering more often than the U.S. firms do. The Japanese firms also move in greater
numbers to group decision-making around the time of the initial public offering.
6.2. Investor information
In most Asian countries, a prospectus, detailing specific and relevant information about the
company, is required to be given to investors prior to the issuance of an IPO. Many stock
exchanges in Asia require that the company seeking listing on their stock exchange must provide
certain specific information, such as the company's financial or accounting data for the most
recent few years and the management earnings forecast. Many of the IPO studies have tried to
relate the values of the information provided in the prospectus to the initial return of the IPO.
In Japan, Beckman et al. (2001) study the effect of financial health on the under-pricing of
Japanese IPOs. In Korea, Kim et al. (1994) study the relation between accounting disclosures in
prospectuses and the under-pricing of Korean IPOs.
In Korea, Kim et al. (1995b) study the role of information disclosed through the prospectuses,
using a sample of 260 IPOs listed on the Korea Stock Exchange during the January 1985March
1990 period. They find that the market price is significantly affected by financial variables, such
260
as earnings per share, offer size, industry-type prospects, and offer type. They also find that the
market price is more closely associated with these financial variables after the 1988 liberalization
of Korean IPO pricing than it was before the liberalization. This study highlights the importance
of financial variables contained in the offering prospectus for the pricing of IPOs in the new issues
market where information is scarce.
In Hong Kong, Jaggi (1997) examines the accuracy of forecast information disclosed in the IPO
prospectuses of Hong Kong companies from 1990 to 1994. Overall, IPO forecasts disclosed by
Hong Kong companies provide reliable information. Chan et al. (1996) study the factors that
contribute to the accuracy of the prospectus earnings forecasts for 110 Hong Kong IPO companies
from 1990 to 1992. Prospectus earnings forecasts form a significant subset among different kinds
of public information available for assessing the quality of IPO candidates. They find that the
accuracy of the prospectus earnings forecasts tends to increase if the past profit variability is lower,
the change in economic condition is smaller, and the company's listing is more recent. Chen et al.
(2001) examine earnings forecast errors in Hong Kong IPO prospectuses. A forecast of the next
year's profit is often included in the IPO prospectus to help the investors in deciding whether to
subscribe to the new issue, and whether to invest on the first day of trading. In general, forecasts
appear to be quite accurate, and investors are able to anticipate forecast errors at the time of listing.
In Malaysia, Jelic et al. (2001) study the relation between the performance of Malaysian IPOs
and the management earnings forecasts. The evidence indicates a negative association of upward
bias in management earnings forecasts with IPO performance during the first 12 months after the
initial public offerings. Yong and Isa (2003) report that over-subscription ratio (as a proxy for
investor demand for the IPO) is a variable that consistently explains the levels of initial return in
Malaysian IPOs.
Eng and Aw (2000) examine whether investor demand for IPOs in Singapore is determined by
the fundamentals of the IPO firms. In the decision to purchase IPOs, they find that the demand by
large investors is positively associated with earnings yield, firm size and under-pricing, and
negatively associated with book-to-market ratio. In contrast, the demand by small investors is
negatively associated with earnings yield, firm size and under-pricing.
A related issue worth looking into is the effect of auditing firm reputation on the level of IPO
under-pricing. One would argue that that a reputable auditing firm will have a positive effect on
the proper pricing of an IPO thus reducing the level of under-pricing. Ng et al. (1994) study the
effect of auditing reputation on the under-pricing of Hong Kong IPOs. More studies of this nature
can be carried out in other Asian countries.
6.3. Choice of underwriter
It seems that the reputation of an underwriter has an effect on the levels of initial return. The
empirical evidence seems to suggest that underwriters with a better reputation tend to reduce the
initial under-pricing (see, for example, Beatty and Ritter, 1986; Johnson and Miller, 1988; Beatty
and Welch, 1996; Carter et al., 1998; Paudyal et al., 1998). Beatty and Welch (1996), however,
suggest that a negative relationship between the level of IPO under-pricing and underwriters'
reputation may be reversed due to changes in the economic environment.
In Japan, Beckman et al. (2001) study the influence of underwriter reputation on the underpricing of Japanese IPOs between 1980 and 1998. They find no evidence that underwriter
reputation influences the level of under-pricing.
In Hong Kong, Dewenter and Field (2001) examine Hong Kong firms focusing on
infrastructure projects that are allowed to issue IPOs under a relaxed set of listing requirements,
261
allowing these firms to go public with a shorter history or lower profitability levels compared to
other firms. They report that reputable investment banks undertake the listing of these IPO firms.
They also find that these IPO firms have characteristics that otherwise mitigate their lack of
earnings history; this is consistent with investment banks avoiding highly speculative issues to
protect their reputations.
In Malaysia, Jelic et al. (2001), using data from 1980 to 1995, report that underwriters with a
better reputation tend to, on average, increase initial under-pricing; this contradicts the results
reported in studies on underwriters' role in other countries, such as Beatty and Ritter (1986) and
Carter et al. (1998). However, results of both parametric and non-parametric tests reveal no
significant difference between average initial returns of IPOs underwritten by reputable
underwriters and IPOs underwritten by less reputable underwriters. Paudyal et al. (1998) find that
Malaysian IPOs underwritten by reputed underwriters are significantly better long-term
investments as compared to IPOs underwritten by less reputed underwriters.
Related issue worth looking into is the gross spread, which is the direct compensation that
underwriters receive for taking a firm public. Chen and Ritter (2000) report that in the late 1990s,
almost all U.S. IPOs that raise money from the public between $20 million and $80 million paid
gross spreads of exactly 7.0%. Butler and Huang (2003) examine the investment bank gross
spreads for Hong Kong during 19912000, and find pronounced clustering, that is nearly 94%
have spreads of exactly 2.5%. They also find that the arrival of the book-building process for
Hong Kong IPOs has increased the level of IPO gross spreads and at the same time decreased the
clustering of IPO gross spread.
On another related issue, Cheng et al. (2005), employing a sample of 267 IPOs from 1993 to
1997, find that underwriters use non-discretionary allocation of IPOs to favor small investors in
Hong Kong. The results support the argument that in an IPO market where investment bankers do
not have a trusting relationship with large investors and an effective mechanism to monitor block
traders' selling, IPO underwriters explicitly allocate relatively more shares of better (more underpriced) IPOs to a larger number of small (loyal) investors. Cheng et al. note that the result may be
driven by the regulatory concern on protecting the interest of small investors in Hong Kong.
In a related issue, Cliff and Denis (2005) find that the probability of switching underwriters
between IPO and SEO is negatively related to the unexpected amount of post-IPO analyst
coverage (by the lead underwriter). They suggest that the finding is consistent with the hypothesis
that says under-pricing is, in part, compensation for expected post-IPO coverage. This is an area
of research worth looking into in Asia.
6.4. Ownership structure
With an IPO, the ownership structure will change and the shares sold in the IPO are designated
as primary shares, which are new shares, and secondary shares, which are shares that were
previously owned by existing shareholders, usually founders and managers of the firm. The size
of the new issue relative to the existing shares and their distribution will change the ownership
structure. What is the effect of ownership structure on the levels of initial return?
LaPorta et al. (1999) point out that for emerging market countries, ownership structure plays a
very important role in corporate finance. Kim et al. (2004) study the relationship between
managerial ownership and firm performance using Thai IPO firms because as pointed out by
Claessens et al. (2000) large Thai shareholders have significant cash flow and voting rights as
compared to other shareholders from around the world. Using a sample of 133 Thai IPOs from
1987 to 1993, they find that firms with low (031%) and high (71100%) levels of managerial
262
ownership experience positive relationships between managerial ownership and the change in
performance (alignment-of-interest hypothesis), while the firms with intermediate (3171%)
levels of managerial ownership exhibit a negative relationship between managerial ownership and
the change in performance (entrenchment hypothesis).
In Malaysia, Saadouni et al. (2005), using 322 IPOs listed on the Second Board for the period
19892000, find that under-pricing is inversely related to the proportion of shares allocated to
Bumiputra investors. On average, Bumiputra investors and the Malaysian public are allocated
almost an equal proportion and make similar profits per issue. However, institutional Bumiputra
investors appear to be allocated a higher proportion of the over-priced issues than the most underpriced ones.
6.5. Share lock-up
Lock-up period refers to a period where insiders are prohibited from selling shares without the
written permission of the lead underwriter. In the US, the average period is 180 days or 6 months.
The lock-up provision is an attempt to control the supply of shares sold during the period after the
IPO by the insiders or the existing shareholders. Mohan and Chen (2001) and Brav and Gompers
(2003) argue that the structure of the lock-up agreements reflects the degree of the adverse
selection or moral hazard problem, and thus resulting in IPOs being under-priced.
In Malaysia, share lock-up is commonly known as share moratorium. Wan-Hussin (2005),
using 154 IPOs listed on the Main Board and the Second Board of the Kuala Lumpur Stock
Exchange from 1996 to 2000, finds that the greater the burden of lock-up imposed on the
directors, the higher is the Malaysian IPO under-pricing. During the period of this study, Wan
Hussin states that major shareholders are not allowed to sell 45% of IPOs within 1 year, and in
every subsequent year, they are allowed to dispose one third of the shares that are under the
moratorium.
6.6. Group/institutional affiliation
In Japan, Hamao et al. (2000) study the institutional affiliation and its influence on the underpricing of Japanese IPOs. Many of the major venture capital firms in Japan are subsidiaries of
securities firms that may face a conflict of interest when underwriting the venture capital-backed
issue. Hamao et al. find that the long-run performance of venture capital-backed IPOs is no better
than that of other IPOs, with the exception of firms backed by independent venture capitalists or
foreign-owned venture capitalists. When venture capital holdings are broken down by their
institutional affiliation, they find that firms with venture backing from securities company
subsidiary do not perform significantly worse over a 3-year horizon than other IPOs. On the other
hand, they find that IPOs in which the lead venture capitalist is also the lead underwriter have
higher first-day returns than other venture capital-backed IPOs; this result suggests that conflicts
of interest influence the initial pricing, but not the long-term performance of IPOs in Japan.
Beckman et al. (2001) study a unique characteristic of Japanese IPOs, namely the keiretsu
affiliation, and its influence on the under-pricing of Japanese IPOs. Keiretsu refers to the
formation of a group of firms connected to a main bank or a major firm, whereby firms have crossownership in each of the other member's stock, and generally, the controlling ownership resides
within the group. They conclude that keiretsu-affiliated firms are more fully priced than are other
firms even-though healthy firms and healthy keiretsu-affiliated firms are significantly more
under-priced.
263
In the Philippines, Sullivan and Unite (2001) study the influence of group affiliation on the
performance of the Philippines IPOs. They report that IPO under-pricing is greater for firms that
are affiliated with family business group, specifically when these affiliated firms use a foreign
lead underwriter. They conclude that market participants recognize conflict of interest problems
and that these conflicts of interest lead to differential under-pricing.
6.7. IPO type
Some Asian countries have a unique way of defining an IPO issue. For example, in Malaysia
an IPO can be a public offer or an offer for sale or both (see Yong and Isa, 2003) or it can be a
privatization initial public offers (PIPOs) (see Paudyal et al., 1998). Yong and Isa (2003) report
differences in performance of Malaysian IPOs between different types of IPOs. Paudyal et al.
(1998) report that Malaysian PIPOs offer significantly higher initial returns than other IPOs. In
China, Chi and Padgett (2005) examine 668 Chinese IPOs where over 90% of them are partial
PIPOs. They show that during privatization the government does not send signals on the quality
of the issuers by under-pricing.
6.8. Firm size
Is firm size relevant in explaining the level of under-pricing in Asian IPOs? Underwriters
usually use comparable company multiples (such as price-to-earnings, enterprise value-to-sales,
enterprise value-to-EBITDA (earnings before interest, taxes, and depreciation and amortization),
and industry-specific multiples) to come up with a preliminary price, or price range. However,
one factor is typically not taken into account, namely the size of the public float or the size of IPO.
That is, if a scarcity premium exists, then the smaller the fraction of the shares outstanding that are
not closely held, the higher the price should be. In other words, if the supply of shares to the public
is smaller, the demand for the stock will result in a higher price. The literature is still lacking in
terms of direct tests to see whether this is a relevant valuation factor. The negative stock returns
when lock-up provisions expire are consistent with the notion that the size of public float does
matter. In Malaysia, Yong and Isa (2003) report that IPOs listed on the Second Board (small firms)
of the Kuala Lumpur Stock Exchange are more under-priced than those listed on the Main Board
(large firms), which means that small firms are more under-priced than big firms.
6.9. Roles played by venture capitalist
The presence of venture capital in the ownership of U.S. firms going public has been
associated with both improved long-term performance and superior certification at the time of
the initial public offerings. In the case of Japanese IPOs, Hamao et al. (2000) find that the longrun performance of venture capital-backed IPOs is more or less the same as the other IPOs, with
the exception of firms backed by independent venture capitalists or foreign-owned venture
capitalists. However, they find that IPOs in which the lead venture capitalist is also the lead
underwriter have higher first-day returns than other venture capital-backed IPOs. Their findings
suggest that conflicts of interest can influence the initial pricing, but not the long-term
performance of IPOs in Japan.
Wang et al. (2003) examine the effects of venture capital (VC) firms on VC-backed listed
companies in Singapore. They find that the effects of venture capitalists' participation are very
complicated. Most significantly, they find that the post-IPO operating performance of VC-backed
264
companies is inferior though they are less under-priced. The finding supports both the
certification model and the adverse selection model. Furthermore, they find that IPOs backed by
older VC firms perform better, supporting the grandstanding model that younger VC firms bring
their portfolios to the market prematurely.
6.10. IPO pricing mechanism
Loughran et al. (1994) and Chowdhry and Sherman (1996) document that the average first-day
return varies systematically with the IPO pricing mechanism used. The highest average first-day
returns can be found in countries where regulators require that offer price is set based on
accounting information. In general, Ritter (2003) points out that the mechanisms used for pricing
and allocating IPOs can be categorized as auctions, fixed-priced offers, or book building. With
auctions, the market-clearing price is determined after bids are submitted. With fixed-priced offer,
the price is set prior to the allocation. If there is excess demand, shares are rationed on a pro rata
basis. With book building, the underwriters solicit or go through potential buyers and then set an
offer price. Derrien and Womack (2003) study French IPOs during the 19921998 period, when
the three issuing mechanisms were used, and conclude that auction is associated with less underpricing (and lower variance of under-pricing) and it exhibits superior ability to incorporate recent
information.
Loughran et al. (1994) note that, in all 25 countries (including 7 Asian countries) for which
data is available, the average initial returns tend to be higher when a fixed offering price is set, and
very low initial returns exist when auctions are used. Pettway and Kaneko (1996) report that the
introduction of public auction reduce the Japanese IPO initial returns significantly. Loughran et al.
(1994) also note that the longer the time that elapses between when a fixed offer price is set and
trading begin the higher is the average first-day return.
Beckman et al. (2001), using Japanese IPOs between 1980 and 1998, report that the underpricing of healthy firms occurs prior to the implementation of the discriminatory price auction
system and is consistent with a high demand for these IPO firms. They also note that reduced
under-pricing of keiretsu firms during the post-auction period is consistent with the notion that
they have more stable earnings than other firms.
In Hong Kong, Butler and Huang (2003) examine the investment bank gross spreads during
19912000, and find that the introduction of book-building process for Hong Kong IPOs has
increased the level of IPO gross spreads and at the same time has decreased the clustering of IPO
gross spread.
Kim et al. (1995b), using a sample of 260 Korean IPOs from January 1985 to March 1990, find
that the market price is significantly affected by financial variables, such as earnings per share,
offer size, industry-type prospects, and offer type. They also find that the market price is more
closely associated with these financial variables after the 1988 liberalization of Korean IPO
pricing than it was before the liberalization.
6.11. Book building vs. auction
Ritter (2003) points out that auctions have been used in many countries, including France, Israel,
Japan, Taiwan, and the U.S., but in general, auctions have been associated with low but positive
average first-day returns, compared with fixed-priced offers and book building IPO sale regimes. In
the case of French IPOs, Derrien and Womack (2003) find auction is associated with less underpricing and lower variance of under-pricing compared to book building or fixed-price offers.
265
Biais and Faugeron-Crouzet (2002) argue that book building is a superior mechanism for
selling IPOs compared to auctions. The argument is that book building can be considered as a
type of dynamic auction done by underwriters, where underwriters can use their discretion in
allocating shares to reward investors who provide reliable information about valuation.
According to Sherman (2005), the U.S. book building method has become increasingly popular
over the last decade, whereas auctions have been abandoned in nearly all of the countries in which
they have been tried. This popularity gives an impression that book building is the most efficient IPO
mechanism; however, a study on Japanese IPOs by Kaneko and Pettway (2003) suggests otherwise.
Kaneko and Pettway (2003), using Japanese IPOs for the period 19932001, compare the
performance of investor-priced IPOs using price-competitive auctions with that of underwriterpriced IPOs using book building. They find that the initial returns of book building IPOs are
significantly higher than those of auctions, especially during hot markets, which means that
Japanese IPO firms left more money on the table using book building compared to auctions.
More recently, Pettway et al. (2006), using Japanese IPO data for the period January 1993
December 2001 for both auction and book building, find that auction provides more reasonable
levels of under-pricing and lower after-market volatility compared to book building.
Kutsuna and Smith (2004) examine Japan's 1997 introduction of book building as and
alternative to auction that has been required since 1989. Among other things, they find that
despite its higher total issue cost for some issuers, all issuers prefer book building to auction
because book building enables firms to be valued more accurately. Compared to Japan's prior
auction regime, they find that for large well-established issuers, book building reduces total issue
cost. Even-though book building is more costly for small issuers, the aggregate costs of book
building and auction are similar. In general, they conclude that the evidence from Japan's market
experiment favors book building over auction.
Kerins et al. (2005) suggest that the Japanese auction IPO data is consistent with there being an
implicit contract to allocate risk related to initial mispricing, where the underwriter participates in
the upside performance in exchange for guaranteeing a minimum price. Chen et al. (2003) find
that if the offering prices are set equal to the average offering price, the initial return is zero for
discriminatory IPO auctions in Taiwan. Lin et al. (2001) find that discriminatory IPO auctions in
Taiwan yield a significant abnormal return of 7.83% in the post-IPO market.
At present, however, the popularity of book building relative to auctions has not been fully
examined or explained in the West. Even-though auction is found to be a more efficient IPO
pricing mechanism as shown by Derrien and Womack (2003) and Pettway et al. (2006), and as
correctly pointed out by Pettway et al. (2006), the question as to why issuing firms are choosing a
seemingly inefficient method (book building) remains a puzzle. In fact, book building versus
auction methods is an issue that many researchers as well as market regulators in Asia would be
interested in the immediate future.
6.12. Unique features of Asian IPOs
There are studies that attempt to explain the valuation and performance of Asian IPOs from the
unique feature of Asian capital markets. Pettway and Kaneko (1996), for example, investigate two
major structural changes in the Japanese IPO pricing mechanism, and they report that the removal
of price limits and the introduction of public auction reduce the IPO initial returns significantly.
Hamao et al. (2000) find that in the long-run, venture capital-backed Japanese IPOs perform no
better than the other IPOs, with the exception of firms backed by independent venture capitalists
or foreign-owned venture capitalists. Beckman et al. (2001) report that in Japan, there is less
266
under-pricing for keiretsu-affiliated IPO firms. Keiretsu is the formation of a group of firms
connected to a main bank or a major firm, whereby firms have cross-ownership in each of the
other member's stock, and generally, controlling ownership resides within the group. In the
Philippines, Sullivan and Unite (2001) report that IPO under-pricing is greater for firms that are
affiliated with family business group.
In Malaysia, Paudyal et al. (1998) find that privatization initial public offers (PIPOs) are more
under-priced than other Malaysian IPOs. In China, using 668 Chinese IPOs where over 90% of
them are partial PIPOs, Chi and Padgett (2005) show that during privatization the government
does not send signals on the quality of the issuers by under-pricing.
Huang and Song (2005) compare pre- and post-listing financial and operating performance for
a complete sample of H-firms that are listed in Hong Kong between 1993 and 2000. H-firms are
China's state-owned enterprises incorporated in Mainland China that are listed either in Hong
Kong, New York, London, or Singapore, and restricted to foreign investors. H-shares are mostly
listed in Hong Kong. Theoretically, there are two major opposing influences on the performance
change of these IPOs, namely the negative IPO effect and the positive privatization effect. This
study finds that the IPO effect dominates the privatization effect, in that the H-firms experienced a
significant decrease in profitability and operating efficiency after listing. This study also finds that
the performance of a control sample of newly listed private firms declined more than that of the
H-firms, probably because the positive privatization effect somewhat offsets the negative IPO
effect for the H-firms. Huang and Song note that this study is the first to document the positive
effect of privatization in oversea listed Chinese companies.
Chen et al. (2004a) examine the performance of 701 A-shares (shares restricted to domestic
investors) and 117 B-shares (shares restricted to foreign investors) of Chinese IPOs for the period
19921997. They find that the median initial return on A-share IPOs is 145%, while the median
initial return on B-share IPOs is 10%. They find that risk is strongly and positively related to the
under-pricing of A-share IPOs; high government and legal entity shareholdings are also
associated with the under-pricing. B-share under-pricing is positively related to seasoned equity
offerings (SEOs) and government ownership. Overall, they find that under-pricing is a positive
function of the relative price-to-book ratio and the relative price-earnings multiple.
Chowdhry and Sherman (1996) state that issuers in many countries in Asia, such as Hong
Kong, Singapore, Malaysia, Indonesia, India, Thailand, and Bangladesh tend to favor small over
large investors. For example in Hong Kong between 1986 and 1992, 85% of IPOs were allocated
in a way that strictly favored smaller orders. The reason for favoring small investors over large
investors is often thought to be some notion of fairness. Cheng et al. (2005), using a sample of
267 Hong Kong IPOs from 1993 to 1997, find that underwriters use non-discretionary allocation
of IPOs to favor small investors in Hong Kong. Cheng et al. are in the opinion that the result may
be driven by the regulatory concern on protecting the interest of small investors in Hong Kong.
Bossaerts and Hillion (2001) have shown that in the U.S. IPO market where there are no price
limits, investors learn efficiently. Chen et al. (2004b) examine whether investors learn efficiently
from prior information despite price limits, using 362 IPOs issued between 1991 and 1998 in
Taiwan. Taiwan is chosen for this study because Taiwan imposes price limit. Taiwan imposes a
7% price limit-stocks cannot be traded at prices 7% higher or 7% lower than the preceding closing
price. Chen et al. show that, ignoring hidden information behind price limits, investors tend to
under-react to market information. Correcting for hidden information behind price limits, the
investors learn efficiently and thus earn no abnormal returns on IPOs.
Chi and Padgett (2005) examine the under-pricing of 668 Chinese IPOs, where over 90% of
them are partial privatization IPOs (PIPOs). They find that Chinese IPO under-pricing is primarily
267
explained by the inequality of supply and demand caused by the quota system and the high
proportion of uninformed individual investors. The results also show that during privatization, the
government does not send signals on the quality of the issuers by under-pricing, but it does
capture the market opportunities to time IPOs to get the best market feedback on offerings.
A unique feature of the Malaysian IPO market is that the government uses it as an instrument
of economic policy to redistribute wealth among the different ethnic groups. Saadouni et al.
(2005) examine the relation between the proportion of IPO shares allocated to Bumiputra (native)
investors and the pricing of Malaysian IPOs using 322 IPOs listed on the Kuala Lumpur Stock
Exchange (KLSE) Second Board for the period 19892000. On average Bumiputra investors are
allocated almost an equal proportion, but institutional Bumiputra investors appear to be allocated
a higher proportion of the over-priced issues than the most under-priced ones. The findings
confirm that regulators use the allocation process as the sole instrument to redistribute wealth
among the different ethnic groups in Malaysia and tend to value non-Bumiputra controlled
companies more favorably than Bumiputra controlled companies.
7. Other relevant issues
7.1. Underwriter compensation
The direct compensation that underwriters receive is primarily in the form of underwriting
discount, or gross spread. Logically speaking, the gross spread should be higher on riskier deals
than safer deals. Ljungqvist et al. (2003) find that for the IPOs of foreign firms, US underwriters
charge higher direct fees, but leave less money on the table than non-US underwriters. This kind
of study is still lacking in Asia.
7.2. Stabilization activities
According to Ritter (2003), stabilization, or price support, activities are legally allowed
manipulation practices at the time of securities offerings. In the U.S., the underwriters can overallot securities and then cover the resulting short position by retiring some of the securities and/or
exercising an over-allotment option (known as a Green Shoe option). In the U.S., almost all IPOs
give the underwriter the option of selling up to an additional 15% shares. In about two-thirds of
the US IPOs, the over-allotment option is exercised fully. Penalty bids are also permitted, in
which the lead underwriter will take back the commission of a broker whose client immediately
resells (flip) the securities that he has been allotted. This encourages the broker to allocate the
securities to a buy- and-hold investor and creates incentives to dissuade the client from selling in
the market.
Aggarwal (2000) reports that it is common for underwriters to sell up to 135% of an issue if
weak after-market demand is expected. Since at most 115% of the issue can be sold, this commits
the syndicate to covering their naked short position of 20% of the offer size. If strong after-market
demand is expected, leading to a price rise, the underwriters generally do not take a naked short
position.
Hanley et al. (1993) argue that price supports reduce market maker's inventory holding-risk in
the after-market of IPOs. Li and Eisenstadt (2005) find that both spreads and their inventory
components are significantly smaller in the earlier periods of the IPO after-market than those in
the later periods, and the inventory components of spreads are significantly smaller for stocks
without over-allotment options exercised, and for stocks with lower or negative initial returns.
268
In Australia, using a sample of 419 Australian IPOs from December 1995 to December 2000,
Bayley et al. (2006) investigate the relation between flipping behavior and the issuer, the
shareholder, the underwriter and the market characteristics. They define flipping as the liquidation
of an IPO allocation during the first 3 days of initial trading. They find that flipping behavior of
large (informed) investors is unrelated to long-run returns, while uninformed investors
consistently flip more of the IPOs that have better long-run returns. Institutional investors are
more aggressive flippers of both underpriced and overpriced IPOs than individuals. Institutional
investors also flip more of the most overpriced issues than the less overpriced issues.
Currently, stabilization process is perhaps not a main feature of Asian IPOs. If there is this
feature in the future, specific studies can be carried out.
7.3. Over-allotment option
Frequently, the underwriter requires that additional share of the issuing company be made
available to the underwriter to sell if there is excessive demand for the new issue. The presence of
this option affects the initial returns as it affects the under-pricing of IPOs and the demand and
supply schedules of shares. This is another situation where it is not a main feature in Asian IPOs.
If there is this feature in the future, specific studies can be carried out.
7.4. IPO volume versus IPO initial returns
Ibbotson and Jaffe (1975) and subsequent authors have identified significant autocorrelation of
both the monthly number of IPOs and the monthly average first-day returns of IPOs. Lowry and
Schwert (2002) report that months of high average first-day returns tend to be followed by rising
volume. Loughran and Ritter (2002) report that during 1990s, every month between March 1991
and August 1998 had an average first-day return of below 30%, whereas every month from
November 1998 to March 2000 had an average first-day return of above 30%; furthermore, the
first-day returns are predictable based upon lagged market returns. In Asia, this issue has yet to be
explored.
7.5. Pricing of IPOs in relation to comparable firms
Purnanandam and Swaminathan (2004) examine the pricing of IPOs using comparable firms,
and find, on average, IPOs have an offer price 50% higher than predicted on the basis of industry
peers. They also find that the more over-priced the IPO relative to its comparables, the worse is
their long-term performance. There still is room for research in Asia in this area.
7.6. Different measures of IPO initial return
The usual version of initial return of IPO is measured as the percentage difference between
offer price and the closing price of IPO on the first trading day. Perhaps, initial return, or
specifically the over- and under-valuation, can also be measured as the difference between offer
price and the intrinsic value. However, it should be mentioned here that intrinsic value of the
company going public is a controversial issue in itself. Derrien (2005) examines the impact of
investor sentiment on IPO pricing, using a model in which the after-market price of IPO shares
depends on the information about the intrinsic value of the company and the investor sentiment.
Derrien finds that IPOs can be over-priced and still exhibit positive initial return.
269
McGuinness (1993a) applies refined measurements forms for the under-pricing levels in IPOs
to a sample of Hong Kong IPOs. This application allows real levels of IPO under-pricing,
confronting the investors and the issuers, to be discerned. McGuiness argues that the usual
measure of IPO initial return (denoted by IR) is a rather misleading view of the initial return
available to investors, and a misleading view of the actual under-pricing costs confronting the
issuer. Results for issuer-related and investor-related measures of under-pricing indicate that
actual under-pricing levels are considerably lower than the IR under-pricing measure. For issuers,
the results suggest that the under-pricing costs of listing are less onerous than what is commonly
believed. For investors, the evidence indicates that the returns attainable from IPO subscriptions
are less attractive than what is commonly believed.
7.7. IPO and corporate governance
IPO issues related to corporate governance is a new area of IPO research, and this area of
research is still lacking in Asia. It is a research area worth looking into, and there will be many
more papers on this topic in the future. Related to this issue is the cross-section of institutional
ownership in IPOs and subsequent returns. Ben Dor (2003) finds that the level of institutional
ownership shortly after the initial public offering and subsequent changes in holdings can forecast
future performance up to 3 years after the issue date; IPOs in the highest institutional ownership
quintile outperform, after adjusting for risk, IPOs in the lowest quintile by about 1% a month.
However, this return predictability is limited to hot markets characterized by high volume and
large first-day return, which is consistent with institutional investors acting as momentum traders
and enjoying high profits in periods where sentiment is high.
In general, when a private company goes public through an IPO process, the managerial
ownership of the company will decline due to external financing. The effects of dilution of
ownership structure on firm performance are different with respect to the agency theory and with
respect to the corporate control theory. In Asia, Chen and Kao (2005) examine the conflict between
agency theory and corporate control on managerial ownership in the case of Taiwan IPOs. For
Taiwan IPOs, they argue that the level of managerial ownership of IPO companies at issuance is
high enough to control the company, and the increase in managerial ownership in the early aftermarket would be detrimental to firm performance. This means that, from the point of view of
managerial ownership, the corporate control benefit dominates the agency costs of IPO firms.
Fernando et al. (2004) examine whether a firm's choice of IPO price is informative, in the
sense that it relates systematically to the firm's other choices and characteristics. They find that
both institutional ownership and underwriter reputation increases monotonically with the chosen
IPO price level. They also find that the relationship between IPO price and under-pricing is Ushaped, but post-IPO turnover displays an inverted U-shaped relation to IPO price.
7.8. Relation between earnings management and IPOs (and SEOs)
Earnings management hypothesis suggests that IPO firms exhibit unusually larger and
significant gains in operating performance compared to the industry average, 1 year prior to the
offer date, and the presence of this aggressive earnings management is intended to lead investors
to be overly optimistic about the issuer's prospect. When initial earnings cannot be sustained,
disappointed investors will revalue the firm down to a more justified level. Earnings management
and its relation to IPO and SEOs is an important area of IPO research, which is of interest to Asian
scholars and market regulators.
270
Li et al. (2006) examine the relation between the degree of earnings management and the
delisting risk of IPOs. Using a sample of IPOs from 1980 to 1999, they find firms associated with
aggressive earnings management are more likely to delist for performance failure, and tend to
delist sooner. They also find that IPO firms associated with conservative earnings management
are more likely to be merged or acquired and earn positive abnormal returns.
Teoh et al. (1998a) note that issuers of IPOs can report earnings in excess of cash flows by
taking positive accruals. They find that issuers with unusually high accruals in the IPO year
experience poor stock return performance in the 3 years thereafter. They also find that IPO issuers
in the most aggressive quartile of earnings managers have a three-year after-market stock return of
about 20% less than IPO issuers in the most conservative quartile; these firms also issue about
20% fewer seasoned equity offerings (SEOs).
Engel et al. (2004) examine firms' going-private decisions, using data from 1998 to 2004, in
response to the passage of the SarbanesOxley Act of 2002 (SOX). The Act has the potential to
bring both benefits and costs; the benefits are in terms of more transparent disclosure and
improvements in corporate governance, and costs are in terms of complying with the new
regulation. They argue that firms go private in response to SOX only if the SOX-imposed costs to
the firm exceed the SOX-induced benefits to the shareholders. They find that the frequency of
going private has increased after the passage of SOX, and the abnormal returns associated with
the passage of SOX are positively related to firm size and share turnover. They also find that
smaller firms and firms with greater inside ownership experience higher going-private
announcement returns in the post-SOX period compared to the pre-SOX period.
Teoh et al. (1998b) find that IPO firms have high positive issue-year earnings and abnormal
accruals, followed by poor long-run earnings and negative abnormal accruals. They also find that the
IPO-year abnormal accruals explain the cross-sectional variation in post-issue earnings and stock
returns. Their results suggest that opportunistic earnings management partially explains the new
issue anomaly. DuCharme et al. (2004) note that abnormal accounting accruals are unusually high
around stock offers, especially high for firms whose offers subsequently attract lawsuits. Accruals
tend to reverse after stock offers and are negatively related to post-offer stock returns; reversals are
more pronounced and stock returns are lower for sued firms compared to firms that are not sued. The
results of this study support the view that some firms opportunistically manipulate earnings upward
before initial public offering that render themselves vulnerable to litigation.
Studies on the post-issue performance of the US SEOs, such as McLaughlin et al. (1996) and
Loughran and Ritter (1997), report that issuers experience significant decline in stock return for
up to 5 years after the issuance. Similar phenomenon is reported in other countries such as Hong
Kong (Mathew, 2002), Japan (Cai and Loughran, 1998), and the United Kingdom (Levis, 1995).
However, in Korea Mathew (2002) finds that SEO firms do not experience subsequent stock
underperformance. The post-issue poor performance suggests that managers of the issuing firms
involve in aggressive earnings management prior to the issue in order to sell shares at inflated
prices. In Asia, Guan et al. (2005) examine earnings management among 901 Japanese SEO
issuers for the period 19761999. In contrast to the findings of the US SEO issuers, they find that
Japanese managers choose not to manage earnings prior to the stock offerings but delay it to the
post-issue period in order to cover up poor firm performance.
8. Concluding remarks
I believe that there are still many unresolved issues remaining. For the start, no research has
addressed the issue regarding the right time to issue an IPO. Pagano et al. (1998) report that there
271
is no any model that can fully explain at what stage of a firm's lifecycle it is optimal to go public
or issue IPO.
The number of companies going public also varies dramatically from country to country, and
from one period to another. What is the effect of the number of IPOs on the under-pricing of IPO
in each country? As mentioned by Pagano et al. (1998), there is no model that can explain why the
volume of IPOs varies dramatically across time and across countries. In general, it can be
observed that the volume of IPOs varies with overall market trend in most countries; when share
prices rise, the number of IPOs also rises. Furthermore, market conditions can also be viewed as a
function of the relative costs of debt versus equity and the relative costs of private versus public
placement.
What are the influence, if any, the differences in Asian laws and their enforcement, and culture
on the performance of Asian IPOs? Loughran et al. (1994) conclude that, in all 25 countries
(including 7 Asian countries) for which data is available, the average initial returns tend to be
higher the greater is the degree of government interference. Related to this issue is the study on the
effect of the structural change in the IPO pricing mechanism on the IPO under-pricing. In Japan,
Pettway and Kaneko (1996), for example, study the effects of removing price limits and
introducing auctions upon short-term returns of Japanese IPOs. They find that changes that
remove price limits and introduce public auctions reduce the level of initial returns significantly;
this means that public policy can reduce the levels of under-pricing of IPOs. In Korea, Kim et al.
(1995b) find that the market price of an IPO is significantly affected by financial variables (such
as earnings per share, offer size, industry-type prospects, and offer type), and it is more closely
associated with these financial variables after the 1988 liberalization of Korean IPO pricing than it
was before the liberalization. In early 1996, the Stock Exchange of Hong Kong allowed firms
focusing on infrastructure projects to issue IPOs under a relaxed set of listing requirements,
allowing them to go public with a shorter operating history or lower profitability levels. Dewenter
and Field (2001) report that these firms are no more speculative than other IPO firms, and they are
usually taken public by reputable investment banks. In Malaysia, Saadouni et al. (2005) report
that the change in regulation towards a market-based pricing mechanism in 1996 has an adverse
effect on under-pricing; IPOs listed before the change in regulatory environment are significantly
less under-priced than those listed after the change. In general, this area of research is still lacking
in Asia, and I truly believe that it is a research area worth looking into.
In Korea, Kim et al. (1995b) find that the market price of an IPO is significantly affected by
financial variables (such as earnings per share, offer size, industry-type prospects, and offer type),
and it is more closely associated with these financial variables after the 1988 liberalization of
Korean IPO pricing than it was before the liberalization. In early 1996, the Stock Exchange of
Hong Kong allowed firms focusing on infrastructure projects to issue IPOs under a relaxed set of
listing requirements, allowing them to go public with a shorter operating history or lower
profitability levels. Dewenter and Field (2001) report that these firms are no more speculative
than other IPO firms, and they are usually taken public by reputable investment banks. In
Malaysia, Saadouni et al. (2005) report that the change in regulation towards a market-based
pricing mechanism in 1996 has an adverse effect on under-pricing; IPOs listed before the change
in regulatory environment are significantly less under-priced than those listed after the change.
The marketing of IPOs is another area of research that needs serious attention from researchers
in Asia. In the U.S., Cook et al. (2006), using data for a sample of IPOs from 1993 through
2000, find that investment bankers have an incentive to promote an IPO to induce sentiment
investors (noise traders) into the market for it. They also find that the promotional efforts of
investment bankers influence the compensation of investment bankers, the valuation of an IPO,
272
its initial returns and trading, the wealth gains of insider shareholders, and the likelihood that an
issuer switches investment bankers for a subsequent seasoned equity offering.
What is the effect of IPO size on its initial return or under-pricing? What is the optimum size
for each sector of the market? These are still unanswered questions in Asian IPOs. Finally,
research related to market microstructure during the post-listing of IPOs can still be carried out in
Asia. IPO volatility during the post-listing can also be studied.
References
Aggarwal, R., 2000. Stabilization activities by underwriters after initial public offerings. Journal of Finance 55,
10751103.
Allen, F., Faulhaber, G.R., 1989. Signaling by under-pricing in the IPO market. Journal of Financial Economics 23, 303323.
Baron, D.P., 1982. A model of the demand for investment banking advising and distribution services for new issues.
Journal of Finance 37, 955976.
Bayley, L., Lee, P.J., Walter, T.S., 2006. IPO flipping in Australia: cross sectional explanations. Pacific-Basin Finance
Journal 14, 327348.
Beatty, R.P., Ritter, J.R., 1986. Investment banking, reputation, and the under-pricing of initial public offerings. Journal of
Financial Economics 15, 213232.
Beatty, R.P., Welch, I., 1996. Issuer expenses and legal liability in initial public offerings. Journal of Law and Economics
34 (2), 545602.
Beckman, J., Garner, J., Marshall, B., Okamura, H., 2001. The influence of underwriter reputation, keiretsu affiliation, and
financial health on the under-pricing of Japanese IPOs. Pacific-Basin Finance Journal 9, 513534.
Ben Dor, A., 2003. The Performance of Initial Public Offerings and the Cross Section of Institutional Ownership. Working
Paper. Northwestern University.
Benveniste, L.M., Spindt, P.A., 1989. How investment bankers determine the offer price and allocation of new issues.
Journal of Financial Economics 24, 343361.
Biais, B., Faugeron-Crouzet, A.M., 2002. IPO auctions: English, Dutch, French and Internet. Journal of Financial
Intermediation 11, 936.
Bossaerts, P., Hillion, P., 2001. IPO post-issue markets: questionable predilections but diligent learners? Review of
Economics and Statistics 83, 333347.
Brav, A., Gompers, P., 2003. The role of lock-ups in initial public offerings. The Review of Financial Studies 16 (1), 129.
Brav, A., Michaely, R., Zarutskie, R., 2006. Evidence on the Tradeoff Between Risk and Return for IPO and SEO Firms.
Working Paper. Duke University.
Butler, A.W., Huang, P., 2003. On the uniformity of investment banking spreads: the seven percent solution is not unique.
Journal of Multinational Financial Management 13 (3), 265272.
Cai, J., Loughran, T., 1998. The performance of Japanese seasoned equity offerings, 19711992. Pacific-Basin Finance
Journal 6, 395425.
Cai, J., Wei, K.C.J., 1997. The investment and operating performance of Japanese initial public offerings. Pacific-Basin
Finance Journal 5, 389417.
Carter, R., Dark, F., Sing, A., 1998. Underwriter reputation, initial returns, and the long-run performance of IPO stocks.
Journal of Finance 53, 285311.
Chan, A.M.Y., Sit, C.L.K., Tong, M.M.L., Wong, D.C.K., Chan, R.W.Y., 1996. Possible factors of the accuracy of
prospectus earnings forecast in Hong Kong. The International Journal of Accounting 31 (3), 381398.
Chemmanur, T.J., 1993. The pricing of initial public offerings: a dynamic model with information production. Journal of
Finance 48, 285304.
Chen, A., Kao, L., 2005. The conflict between agency theory and corporate control on managerial ownership: the evidence
from Taiwan IPO performance. International Journal of Business 10 (1).
Chen, H.C., Ritter, J.R., 2000. The seven percent solution. Journal of Finance 55, 11051131.
Chen, G., Firth, M., Krishnan, G.V., 2001. Earnings forecast errors in IPO prospectuses and their associations with initial
stock returns. Journal of Multinational Financial Management 11 (2), 225240.
Chen, A.S., Liaw, G., Leung, M.T., 2003. Stock auction bidding behavior and information asymmetries: an empirical
analysis using the discriminatory auction model framework. Journal of Banking and Finance 27, 867889.
Chen, G., Firth, M., Kim, J.-B., 2004a. IPO under-pricing in China's new stock markets. Journal of Multinational Financial
Management 14 (3), 283302.
273
Chen, A., Chiou, S.L., Wu, C., 2004b. Efficient learning under price limits: evidence from IPOs in Taiwan. Economics
Letters 85, 373378.
Cheng, L.T.W., Chan, K.C., Mak, B.S.C., 2005. Strategic share allocation and under-pricings of IPOs in Hong Kong.
International Business Review 14, 4159.
Chi, J., Padgett, C., 2005. Short-run under-pricing and its characteristics in Chinese initial public offering (IPO) markets.
Research in International Business and Finance 19, 7193.
Chowdhry, B., Sherman, A.E., 1996. The winner's curse and international methods of allocating initial public offerings.
Pacific-Basin Finance Journal 4, 1530.
Claessens, S., Djankov, S., Lang, L.H.P., 2000. The separation of ownership and control in East Asian corporations.
Journal of Financial Economics 58, 81112.
Cliff, M.T., Denis, D.J., 2005. Do IPO Firms Purchase Analyst Coverage with Underpricing? Working Paper. Purdue University.
Cook, D.O., Kieschnick, R., Van Ness, R.A., 2006. On the marketing of IPOs. Journal of Financial Economics 82, 3561.
Dawson, S.M., 1987. Secondary stock market performance of initial public offers, Hong Kong, Singapore and Malaysia:
19781984. Journal of Business Finance and Accounting 14 (1), 6576.
Demers, E., Lewellen, K., 2003. The marketing role of IPOs: evidence from Internet stocks. Journal of Financial
Economics 68, 439484.
Derrien, F., 2005. IPO pricing in hot market conditions: who leaves money on the table? Journal of Finance 60 (1), 487521.
Derrien, F., Womack, K.L., 2003. Auction vs. book-building and the control of under-pricing in hot IPO markets. Review
of Financial Studies 16, 3161.
Dewenter, K.L., Field, L.C., 2001. Investment bank reputation and relaxed listing requirements: evidence from
infrastructure firm IPOs in Hong Kong. Pacific-Basin Finance Journal 9, 101117.
DuCharme, L., Malatesta, P., Sefcik, S., 2004. Earnings management, stock issues, and shareholder lawsuits. Journal of
Eng, L.L., Aw, H.S., 2000. An analysis of factors affecting investor demand for initial public offerings in Singapore.
Multinational Finance Journal 4 (1&2), 133153.
Engel, E., Hayes, R., Wang, X., 2004. The SarbanesOxley Act and Firms' Going-Private Decisions. Working Paper.
University of Chicago.
Fama, E.F., French, K.R., 1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33, 356.
Fernando, C.S., Krishnamurthy, S., Spindt, P.A., 2004. Are share price levels informative? Evidence from the ownership,
pricing, turnover, and performance of IPO firms. Journal of Financial Markets 7 (4), 377403.
Firth, M., Liau-Tan, C.K., 1997. Signaling models and the valuation of new issues: an examination of IPOs in Singapore.
Grinblatt, M., Hwang, C.Y., 1989. Signaling and the pricing of unseasoned new issues. Journal of Finance 44, 393420.
Guan, L., He, D., Rhee, G., 2005. Earnings Management and Performance of Seasoned Equity Offerings: Evidence from
Japanese Issuers. Working Paper. University of Hawaii at Manoa.
Hamao, Y., Packer, F., Ritter, J.R., 2000. Institutional affiliation and the role of venture capital: evidence from initial public
offerings in Japan. Pacific-Basin Finance Journal 8, 529558.
Hanley, K.W., 1993. The under-pricing of initial public offerings and the partial adjustment phenomenon. Journal of
Financial Economics 34 (2), 231250.
Hanley, K.W., Kumar, A., Seguin, P.J., 1993. Price stabilization in the market for new issues. Journal of Financial
Huang, G., Song, F.M., 2005. The financial and operating performance of China's newly listed H-firms. Pacific-Basin
Hughes, P., Thakor, A., 1992. Litigation risk, intermediation, and the under-pricing of initial public offerings. Review of
Financial Studies 5, 709742.
Hwang, C.-Y., Jayaraman, N., 1993. The post-listing puzzle: evidence from Tokyo Stock Exchange listings. Pacific-Basin
Ibbotson, R.G., Jaffe, J.F., 1975. Hot issue markets. Journal of Finance 30, 10271042.
Ibbotson, R.G., Ritter, J.R., 1995. Initial public offerings, Chapter 30. In: Jarrow, R., Maksimovic, V., Ziemba, W. (Eds.),
Handbooks in Operations Research and Management Science: Finance. Elsevier B.V., Amsterdam, pp. 9931016.
Jaggi, B., 1997. Accuracy of forecast information disclosed in the IPO prospectuses of Hong Kong companies. The
International Journal of Accounting 32 (3), 301319.
Jelic, R., Saadouni, B., Briston, R.J., 2001. Performance of Malaysian IPOs: underwriters' reputation and management
earnings forecasts. Pacific-Basin Finance Journal 9, 457486.
Jenkinson, T.J., 1990. Initial public offerings in the United Kingdom, the United States, and Japan. Journal of the Japanese
and International Economies 4 (4), 428449.
274
Jensen, M.C., 1986. Agency costs of free cash flow, corporate finance and takeovers. American Economic Review 76, 323339.
Johnson, J., Miller, R., 1988. Investment banker prestige and the under-pricing of initial public offerings. Financial
Management 17, 1729.
Kahneman, D., Tversky, A., 1979. Prospect theory: an analysis of decision under risk. Econometrica 47, 263291.
Kaneko, T., Pettway, R.H., 2003. Auctions versus book building of Japanese IPOs. Pacific-Basin Finance Journal 11, 439462.
Kang, J.-K., Kim, Y.-C., Stulz, R., 1999. The under-action hypothesis and the new issue puzzle: evidence from Japan.
Review of Financial Studies 12, 519534.
Kerins, F., Kutsuna, K., Smith, R.L., 2005. Why are IPOs Underpriced? Evidence from Japan's Hybrid Auction-Method
Offerings. Working Paper. Claremont Graduate University.
Kim, E.H., Lee, Y.K., 1990. Issuing stocks in Korea. In: Rhee, S.G., Chang, R.P. (Eds.), Pacific-Basin Capital Markets
Research, vol. I. North-Holland, Amsterdam, pp. 243253.
Kim, J.-B., Krinsky, I., Lee, J., 1993. Motives for going public and under-pricing: new evidence from Korea. Journal of
Business Finance and Accounting 20, 195211.
Kim, J.-B., Krinsky, I., Lee, J., 1994. The valuation of initial public offerings and accounting disclosures in prospectuses:
new evidence from Korea. International Journal of Accounting 29 (1), 4661.
Kim, J.-B., Krinsky, I., Lee, J., 1995a. The aftermarket performance of initial public offerings in Korea. Pacific-Basin
Kim, J.-B., Krinsky, I., Lee, J., 1995b. The role of financial variables in the pricing of Korean initial public offerings.
Kim, K.A., Kitsabunnarat, P., Nofsinger, J.R., 2004. Ownership and operating performance in an emerging market:
evidence from Thai IPO firms. Journal of Corporate Finance 10, 355381.
Koh, F., Walter, T., 1989. A direct test of Rock's model of the pricing of unseasoned issues. Journal of Financial
Kunimura, M., Severn, A.K., 1990. The post-issue performance of new issues in Japanese stocks. In: Rhee, S.G., Chang,
R.P. (Eds.), Pacific-Basin Capital Markets Research, vol. I. North-Holland, Amsterdam, pp. 255263.
Kutsuna, K., Smith, R.L., 2004. Why does book building drive out auction method of IPO issuance? Evidence from Japan.
LaPorta, R., Lopez-De-Silanes, F., Shleifer, A., 1999. Corporate ownership around the world. Journal of Finance 54, 471517.
Lee, P.J., Taylor, S.L., Walter, T.S., 1996. Expected and realized returns for Singaporean IPOs: initial and long-run
analysis. Pacific-Basin Finance Journal 4, 153180.
Lee, P.J., Taylor, S.L., Walter, T.S., 1999. IPO under-pricing explanations: implications from investor application and
allocation schedules. Journal of Financial and Quantitative Analysis 34, 425444.
Levis, M., 1995. Seasoned equity offerings and short- and long-run performance of initial public offerings in the UK.
European Financial Management 1, 125146.
Li, M., Eisenstadt, R.C., 2005. Price support and spreads in the IPO aftermarket: an empirical microstructure study. The
Quarterly Review of Economics and Finance 45, 748766.
Li, J., Zhang, L., Zhou, J., 2006. Earnings Management and Delisting Risk of Initial Public Offerings. Working Paper.
University of Rochester.
Lim, U., 1992. The price mechanism of IPO market in Korea: emphasis on the recent liberalization reform. In: Rhee, S.G.,
Chang, R.P. (Eds.), Pacific-Basin Capital Markets Research, vol. III. North-Holland, Amsterdam, pp. 321339.
Lin, Y.J., Wei, K.C.J., Liaw, G., 2001. On demand elasticity of initial public offerings: an analysis of discriminatory
auctions. International Review of Finance 23, 151178.
Ljungqvist, A.P., Jenkinson, T., Wilhelm, W.J., 2003. Global integration in primary equity markets: the role of U.S. banks
and U.S. investors. Review of Financial Studies 16 (1), 6399.
Loughran, T., Ritter, J.R., 1995. The new issues puzzle. Journal of Finance 50, 2351.
Loughran, T., Ritter, J.R., 1997. The operating performance of firms conducting seasoned equity offerings. Journal of
Finance 52, 18231850.
Loughran, T., Ritter, J.R., 2002. Why don't issuers get upset about leaving money on the table in IPOs? Review of
Financial Studies 15, 413443.
Loughran, T., Ritter, J.R., Rydqvist, K., 1994. Initial public offerings: international insights. Pacific-Basin Finance Journal
2, 165199.
Lowry, M., Schwert, G.W., 2002. IPO market cycles: bubbles or sequential learning? Journal of Finance 57, 11711200.
Mathew, P., 2002. Long-horizon seasoned equity offerings performance in Pacific Rim markets. Review of Financial
Matsuda, S., Vanderwert, P., Scarbrough, P., 1994. A comparison of Japanese and U.S. firms completing initial public
offerings. Journal of Business Venturing 9 (3), 205222.
275
McGuinness, P., 1992. An examination of the under-pricing of initial public offerings in Hong Kong: 198090. Journal of
Business Finance and Accounting 19, 165186.
McGuinness, P., 1993a. Investor- and issuer-related perspectives of IPO under-pricing. Omega 21 (3), 377392.
McGuinness, P., 1993b. The post-listing return performance of unseasoned issues of common stock in Hong Kong. Journal
of Business Finance and Accounting 20, 167194.
McLaughlin, R., Vasudevan, G., Saffiedine, A., 1996. The operating performance of seasoned equity issuers: free cash
flow and post-issue performance. Financial Management 25, 4153.
Michaely, R., Shaw, W.H., 1994. The pricing of initial public offerings: tests of adverse-selection and signaling theories.
Mohan, N., Chen, C., 2001. Information content of lock-up provisions in initial public offerings. International Review of
Economics and Finance 10, 4159.
Mok, H.M.K., Hui, Y.N., 1998. Under-pricing and aftermarket performance of IPOs in Shanghai, China. Pacific-Basin
Ng, P.H.P., Fung, S.M., Tai, B.Y.K., 1994. Auditing firm reputation and the under-pricing of initial public offerings in
Hong Kong: 19891991. International Journal of Accounting 29 (3), 220233.
Pagano, M., Panetta, F., Zingales, L., 1998. Why do firms go public?: an empirical analysis. Journal of Finance 53, 2764.
Paudyal, K., Saadouni, B., Briston, R.J., 1998. Privatization initial public offerings in Malaysia: initial premium and longterm performance. Pacific-Basin Finance Journal 6, 427451.
Pettway, R.H., Kaneko, T., 1996. The effects of removing price limits and introducing auctions upon short-term IPO
returns: the case of Japanese IPOs. Pacific-Basin Finance Journal 4, 241258.
Pettway, R.H., Thosar, S., Walker, S., 2006. Auctions Versus Book-Built IPOs: Further Evidence. Working Paper.
University of Redlands.
Pukthuanthong, K., Walker, T., 2005. Stock Options and Long Term IPO Performance. Working Paper. Concordia University.
Purnanandam, A.K., Swaminathan, B., 2004. Are IPOs really under-priced? The Review of Financial Studies 17 (3), 811848.
Ritter, J.R., 1991. The long run performance of initial public offerings. Journal of Finance 46, 327.
Ritter, J.R., 2003. Investment banking and securities issuance, Chapter 5. In: Constantinides, G., Harris, M., Stulz, R.
(Eds.), Handbook of the Economics of Finance. Elsevier B.V., Amsterdam, pp. 255304.
Rock, K., 1986. Why new issues are under-priced. Journal of Financial Economics 15, 187212.
Saadouni, B., How, J., Jelic, R., 2005. Share allocation and the performance of the KLSE Second Board IPOs. Paper
Presented at the AFA 2005 Conference, Kuala Lumpur, Malaysia, July 1113.
Sherman, A.E., 2005. Global trends in IPO methods: book building versus auctions with endogenous entry. Journal of
Shiller, R.J., 1990. Speculative prices and popular models. Journal of Economic Perspectives 4, 5565.
Su, D., Fleisher, B.M., 1999. An empirical investigation of under-pricing in Chinese IPOs. Pacific-Basin Finance Journal
7, 173202.
Sullivan, M.J., Unite, A.A., 2001. The influence of group affiliation and the under-pricing process on emerging market
IPOs: the case of the Philippines. Pacific-Basin Finance Journal 9, 487512.
Teoh, S.H., Welch, I., Wong, T.J., 1998a. Earnings management and the long-run market performance of initial public
offerings. Journal of Finance 53, 19351974.
Teoh, S., Wong, T.J., Rao, G., 1998b. Are accruals during initial public offerings opportunistic? Review of Accounting
Studies 3, 175208.
Tinic, S.M., 1988. Anatomy of initial public offerings of common stock. Journal of Finance 43, 789822.
Wang, C.K., Wang, K., Lu, Q., 2003. Effects of venture capitalists' participation in listed companies. Journal of Banking
and Finance 27, 20152034.
Wan-Hussin, W.N., 2005. The Effect of Owner's Participation and Share Lock-up on ipo Under-Pricing in Malaysia.
Working Paper. Northern University of Malaysia.
Welch, I., 1989. Seasoned offerings, imitation costs, and the under-pricing of initial public offerings. Journal of Finance 44,
421448.
Welch, I., 1992. Sequential sales, learning, and cascades. Journal of Finance 47, 695732.
Wethyavivorn, K., Koo-Smith, Y., 1991. Initial public offers in Thailand, 19881989: price and return patterns. In: Rhee,
S.G., Chang, R.P. (Eds.), Pacific-Basin Capital Markets Research, vol. II. North-Holland, Amsterdam, pp. 379394.
Yong, O., 1997. Initial public offerings: the Malaysian experience 19901994. In: Bos, T., Fetherston, T. (Eds.), Advances
in Pacific-Basin Capital Markets, vol. 3. JAI Press, Connecticut, pp. 177188.
Yong, O., Isa, Z., 2003. Initial performance of new issues of shares in Malaysia. Applied Economics 35, 919930.
Yong, O., Yatim, P., Sapian, R.Z., 2001. Initial and long-run performance of new issues on the Malaysian stock market.
Corporate Finance Review 5 (6), 2841.

An Overview of IPO Research in Asia What Is Next

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

An Overview of IPO Research in Asia What Is Next

Uploaded by

Copyright:

Available Formats

Pacific-Basin Finance Journal 15 (2007) 253 275

A review of IPO research in Asia: What's next?

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

O. Yong / Pacific-Basin Finance Journal 15 (2007) 253275

You might also like