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Underpricing, Risk Management, Hot Issue and Crowding out Effects: Evidence from the Australian Resources Sector Initital Public Offerings

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Author Info
Hoa Nguyen () (Deakin University)
William Dimovski () (Deakin University)
Robert Brooks () (Monash University)
Abstract

In this paper, we provide a comprehensive investigation of 260 initial public offerings (IPOs) in the Australian resource sector for the 1994 – 2004 period. Consistent with the existing IPO literature, we document a 16.13% underpricing return by firms in the sample. Despite the contention that risk management can reduce the uncertainty relating to the new issue and hence alleviates the extent of underpricing, we do not find any evidence in support of such contention. In addition to the conventional variables used to explain IPOs underpricing, we further provide evidence that the demand for resources IPOs is not ‘crowded-out’ by the strength of alternative IPO markets. We also show evidence that the issue price adjusts to both market return in preceding months and the average underpricing of resources IPOs in the 12 month period leading to the float which offers an explanation to the hot issue effect observed in the IPO market.

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Publisher Info
Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Accounting, Finance, Financial Planning and Insurance Series with number 2007_17.

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Length: 26 pages
Date of creation: 24 Oct 2007
Date of revision:
Handle: RePEc:dkn:acctwp:aef_2007_17

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Related research
Keywords: initial public offerings; underpricing; risk management; crowding-out effect; hot issue market.;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

References listed on IDEAS
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    Other versions:
  6. Shane A. Corwin & Paul Schultz, 2005. "The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 443-486, 02. [Downloadable!] (restricted)
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    Other versions:
  11. Ritter, Jay R, 1984. "The "Hot Issue" Market of 1980," Journal of Business, University of Chicago Press, vol. 57(2), pages 215-40, April. [Downloadable!] (restricted)
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