IDEAS home Printed from https://ideas.repec.org/p/fth/nystfi/99-075.html
   My bibliography  Save this paper

Underpricing of New Equity Offerings by Privatized Firms: An International Test

Author

Listed:
  • Qi Huang
  • Richard M. Levich

Abstract

In this paper, we study a large sample of 507 privatization offerings from 39 countries over the period 1979-1996. Our objectives are twofold. First, we document the extent of short-run underpricing of these privatization offerings and measure their variation across countries, industries, and years, as well as drawing comparisons to private company IPOs. Second, we test alternative explanations of the determinants of short-run underpricing drawing on various models of maximizing behavior by underwriters, augmented by variables that proxy for national political objectives. Overall, we find support for elements of asymmetric information theory, investor sentiment theory and the reputation building hypothesis. With the exception of the Gini coefficient, our political proxy variables are typically not significant. Thus to a significant degree, the investment banking strategies believed to characterize IPOs of private companies in industrial countries may also play a role in the IPO strategies of state-owned-enterprises in both industrial and lesser developed economies.

Suggested Citation

  • Qi Huang & Richard M. Levich, 1999. "Underpricing of New Equity Offerings by Privatized Firms: An International Test," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-075, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:99-075
    as

    Download full text from publisher

    File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99075.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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, March.
    3. 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.
    4. Carter, Richard B & Manaster, Steven, 1990. "Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    5. 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.
    6. Muscarella, Chris J. & Vetsuypens, Michael R., 1989. "A simple test of Baron's model of IPO underpricing," Journal of Financial Economics, Elsevier, vol. 24(1), pages 125-135, September.
    7. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    8. Michaely, Roni & Shaw, Wayne H, 1994. "The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories," The Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 279-319.
    9. Lee, Philip J. & Taylor, Stephen L. & Walter, Terry S., 1996. "Expected and realised returns for Singaporean IPOs: Initial and long-run analysis," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 153-180, July.
    10. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August.
    11. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
    12. Ibbotson, Roger G & Jaffe, Jeffrey F, 1975. ""Hot Issue" Markets," Journal of Finance, American Finance Association, vol. 30(4), pages 1027-1042, September.
    13. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-859, September.
    14. Su, Dongwei & Fleisher, Belton M., 1999. "An empirical investigation of underpricing in Chinese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 173-202, May.
    15. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
    16. 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 955-976, September.
    17. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
    18. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    19. Jones, Steven L. & Megginson, William L. & Nash, Robert C. & Netter, Jeffry M., 1999. "Share issue privatizations as financial means to political and economic ends," Journal of Financial Economics, Elsevier, vol. 53(2), pages 217-253, August.
    20. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    21. Philip D. Drake & Michael R. Vetsuypens, 1993. "IPO Underpricing and Insurance Against Legal Liability," Financial Management, Financial Management Association, vol. 22(1), Spring.
    22. Dewenter, Kathryn L & Malatesta, Paul H, 1997. "Public Offerings of State-Owned and Privately-Owned Enterprises: An International Comparison," Journal of Finance, American Finance Association, vol. 52(4), pages 1659-1679, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Massimo Florio & Katiuscia Manzoni, 2004. "Abnormal returns of UK privatizations: from underpricing to outperformance," Applied Economics, Taylor & Francis Journals, vol. 36(2), pages 119-136.
    2. Calò, Silvia, 2019. "Bailouts: The lesser of two evils?," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 84-98.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Attiya Yasmin Javid & Henna Malik, 2016. "Performance and capital structure of IPOs in Pakistan from 2000 to 2015," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 2(1), pages 1-19, December.
    2. Henna Malik & Malik Muhammad Shehr Yar & Attiya Yasmin Javid, 2017. "New Issues Puzzle: Experience from Karachi Stock Exchange," Working Papers id:12182, eSocialSciences.
    3. Maher Kooli & Jean-Marc Suret, 2001. "The Underpricing of Initial Public Offerings: Further Canadian Evidence," CIRANO Working Papers 2001s-50, CIRANO.
    4. Schuster, Josef Anton, 2003. "The cross-section of European IPO returns," LSE Research Online Documents on Economics 24859, London School of Economics and Political Science, LSE Library.
    5. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    6. Josef Schuster, 2003. "The Cross-Section of European IPO Returns," FMG Discussion Papers dp460, Financial Markets Group.
    7. Fouad Jamaani & Manal Alidarous, 2019. "Review of Theoretical Explanations of IPO Underpricing," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 6(1), pages 1-18.
    8. Agathee, Ushad Subadar & Sannassee, Raja Vinesh & Brooks, Chris, 2012. "The underpricing of IPOs on the Stock Exchange of Mauritius," Research in International Business and Finance, Elsevier, vol. 26(2), pages 281-303.
    9. William Dimovski & Robert Brooks, 2006. "The Pricing of Property Trust IPOs in Australia," The Journal of Real Estate Finance and Economics, Springer, vol. 32(2), pages 185-199, March.
    10. Yong, Othman, 2007. "A review of IPO research in Asia: What's next?," Pacific-Basin Finance Journal, Elsevier, vol. 15(3), pages 253-275, June.
    11. Dimovski, William & Brooks, Robert, 2008. "The underpricing of gold mining initial public offerings," Research in International Business and Finance, Elsevier, vol. 22(1), pages 1-16, January.
    12. João Batista Amorim Toniato, 2007. "“Hot Issue” IPO Markets and its Consequences for Issuing Firms and Investors: The UK Market of 2000," Brazilian Business Review, Fucape Business School, vol. 4(1), pages 1-26, January.
    13. Sarra Ben Slama Zouari & Abdelkader Boudriga & Neila Boulila Taktak, 2011. "Determinants Of Ipo Underpricing: Evidence From Tunisia," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(1), pages 13-32.
    14. Klova, Valeriia, 2017. "IPO underpricing: What about the shipping sector?," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 95-115.
    15. Catherine M. Daily & S. Trevis Certo & Dan R. Dalton & Rungpen Roengpitya, 2003. "IPO Underpricing: A Meta–Analysis and Research Synthesis," Entrepreneurship Theory and Practice, , vol. 27(3), pages 271-295, July.
    16. William Dimovski & Simmala Philavanh & Robert Brooks, 2011. "Underwriter reputation and underpricing: evidence from the Australian IPO market," Review of Quantitative Finance and Accounting, Springer, vol. 37(4), pages 409-426, November.
    17. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "IPO Pricing and the Relative Importance of Investor Sentiment: Evidence from Germany," Discussion Papers 26, University of Bamberg, Chair of Finance.
    18. Cristián Celis & Gustavo Maturana, 1998. "Initial Public Offerings In Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 1(1), pages 7-31.
    19. Kaneko, Takashi & Pettway, Richard H., 2003. "Auctions versus book building of Japanese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 439-462, September.
    20. Farinos, Jose E. & Garcia, C. Jose & Ibanez, Ana Ma, 2007. "Operating and stock market performance of state-owned enterprise privatizations: The Spanish experience," International Review of Financial Analysis, Elsevier, vol. 16(4), pages 367-389.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:nystfi:99-075. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Krichel (email available below). General contact details of provider: https://edirc.repec.org/data/fdnyuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.