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The Initial Returns Of Profit-Exempted Ipos In Taiwan

Author

Listed:
  • Qun Wang
  • Po-Hsin Ho

Abstract

This study investigates a unique sample of firms exempted from the profitability requirement of conducting initial public offerings (IPOs) in Taiwan. From 2005–2018, 67.31% of profit-exempted IPO firms were concentrated in the chemical and bio-pharmaceutical industry. The underpricing of profit-exempted IPO firms was 5.06% lower than those of other IPO companies. Additionally, the initial returns of profitexempted IPO companies during the hot market were 18.82% higher than those of other IPO companies. In opposition to the signaling hypothesis, high-tech firms that are exempted from the profitability requirement may issue IPOs in the hot issue market and deliver optimistic messages about their future operations to mislead investors. Profit-exempted IPO companies obtain higher proceeds from IPOs by misleading investors about the true value of their firms. Therefore, this study suggests that firms exempted from the profitability requirement of conducting IPOs more closely follow the market timing hypothesis.

Suggested Citation

  • Qun Wang & Po-Hsin Ho, 2022. "The Initial Returns Of Profit-Exempted Ipos In Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 16(1), pages 1-18.
    • Handle: RePEc:ibf:ijbfre:v:16:y:2022:i:1:p:1-18
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    More about this item

    Keywords

    Hot Issue; Market Timing; IPOs; Profit-Exempted; Underpricing;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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