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Initial Public Offerings In Chile

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  • CRISTIÁN CELIS

    (Part-time Assistant Professor, School of Business, PUC. Resident vice president of Equity Investments, Citicorp Chile)

  • GUSTAVO MATURANA

    ()
    (Escuela de Administración, Pontificia Universidad Católica de Chile)

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    Abstract

    This paper studies short- and long-run Initial Public Offering (IPO)performance in Chile. Using both a market index and sector indices as benchmarks, our IPO sample shows significant short-run Cumulative Abnormal Return (CAR) of 4.8% and an insignificant CAR up to 4 years after the initial date. While the proceeds collected are negatively related to short-run underpricing, the quality of the underwriter shows a positive relationship to the same variable. When we classify underwriters as “long term players” or “sporadics”, the former show a significantly higher short-run CAR. These results persist in the long-run CAR but without statistical significance. The regulatory environment and the strength of institutional investors seem to play an important role in determining short-run underpricing in Chile. Timing evidence shows a puzzling negative relation between the market’s P/E ratio and the number of companies going public.

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    Bibliographic Info

    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 1 (1998)
    Issue (Month): 1 ()
    Pages: 7-31

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    Handle: RePEc:pch:abante:v:1:y:1998:i:1:p:7-31

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    Related research

    Keywords: Emerging Markets; Chile;

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    References

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    1. Roger G. Ibbotson & Jody L. Sindelar & Jay R Ritter, 1994. "The Market'S Problems With The Pricing Of Initial Public Offerings," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(1), pages 66-74.
    2. Kunz, Roger M. & Aggarwal, Reena, 1994. "Why initial public offerings are underpriced: Evidence from Switzerland," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 705-723, September.
    3. Ruud, Judith S., 1993. "Underwriter price support and the IPO underpricing puzzle," Journal of Financial Economics, Elsevier, vol. 34(2), pages 135-151, October.
    4. Douglas A. Hensler & Ronald C. Rutherford & Thomas M. Springer, 1997. "The Survival Of Initial Public Offerings In The Aftermarket," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 93-110, 03.
    5. Hanley, Kathleen Weiss & Wilhelm Jr., William J., 1995. "Evidence on the strategic allocation of initial public offerings," Journal of Financial Economics, Elsevier, vol. 37(2), pages 239-257, February.
    6. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
    7. Benveniste, Lawrence M. & Wilhelm, William J., 1990. "A comparative analysis of IPO proceeds under alternative regulatory environments," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 173-207.
    8. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1995. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 139-140, May.
    9. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
    10. Anthony Saunders, 1990. "Why are so many new stock issues underpriced?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-12.
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    12. Mark Grinblatt & Chuan Yang Hwang, . "Signalling and the Pricing of Unseasoned New Issues," Rodney L. White Center for Financial Research Working Papers 01-89, Wharton School Rodney L. White Center for Financial Research.
    13. Hunt-McCool, Janet & Koh, Samuel C & Francis, Bill B, 1996. "Testing for Deliberate Underpricing in the IPO Premarket: A Stochastic Frontier Approach," Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1251-69.
    14. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    15. Tinic, Seha M, 1988. " Anatomy of Initial Public Offerings of Common Stock," Journal of Finance, American Finance Association, vol. 43(4), pages 789-822, September.
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    17. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
    18. Reena Aggarwal & Ricardo Leal & Leonardo Hernandez, 1993. "The Aftermarket Performance of Initial Public Offerings in Latin America," Financial Management, Financial Management Association, vol. 22(1), Spring.
    19. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
    20. Baron, David P, 1982. " A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues," Journal of Finance, American Finance Association, vol. 37(4), pages 955-76, September.
    21. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June.
    22. Lawrence M. Benveniste & William J. Wilhelm, 1997. "Initial Public Offerings: Going By The Book," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(1), pages 98-108.
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