Menu Expand

Valuation and Underpricing of Initial Public Offerings

Cite BOOK

Style

Holzschneider, S. (2011). Valuation and Underpricing of Initial Public Offerings. Evidence from Germany in Different Market Cycles. Verlag Wissenschaft & Praxis. https://doi.org/10.3790/978-3-89644-583-4
Holzschneider, Susanna. Valuation and Underpricing of Initial Public Offerings: Evidence from Germany in Different Market Cycles. Verlag Wissenschaft & Praxis, 2011. Book. https://doi.org/10.3790/978-3-89644-583-4
Holzschneider, S (2011): Valuation and Underpricing of Initial Public Offerings: Evidence from Germany in Different Market Cycles, Verlag Wissenschaft & Praxis, [online] https://doi.org/10.3790/978-3-89644-583-4

Format

Valuation and Underpricing of Initial Public Offerings

Evidence from Germany in Different Market Cycles

Holzschneider, Susanna

Studienreihe der Stiftung Kreditwirtschaft an der Universität Hohenheim, Vol. 48

(2011)

Additional Information

Book Details

Pricing

Abstract

This work investigates valuation and underpricing of initial public offerings at the German stock market from 1997 to 2007.

When firms decide to complete an initial public offering (IPO) to raise new equity by issuing shares on a public stock market, their shares have to be priced to allow potential investors to be found. In almost every stock market across several countries the phenomenon of »underpricing« can be seen in the process of going public: share prices after the first day of trading are higher than the initial offering price.

The German stock market was characterized by highly different market and going public conditions during the investigated time period. This allows to empirically analyse determinants of IPO valuation and underpricing within different market cycles. The work focuses on two major research questions: influence of pre-IPO ownership structures on the level of underpricing and the willingness to »leave money on the table« as well as effects of comparable firm multiples of already publicly traded firms on IPO valuation. The analysis shows that determinants and explanations of IPO valuation and underpricing change with different stock market cycles.

Table of Contents

Section Title Page Action Price
Vorwort 5
Table of Contents 7
Tables 11
Figures 13
Abbreviations 14
Introduction 17
Chapter I: Theory and Evidence of IPO Underpricing 21
I Introduction 21
II Theory and Evidence Based on Asymmetric Information Distribution 22
II.1 Information Asymmetries between Issuer and Investor 22
II.1.1 Signalling Theory 22
II.1.2 Certification of Quality 25
II.2 Information Asymmetries between Investors 29
II.2.1 The Winner’s Curse 29
II.2.2 Information Revelation 32
II.3 Information Asymmetries between Underwriter and Issuer 37
III Theory and Evidence Based on SymmetricInformation Distribution 38
III.1 Underwriter Price Support 38
III.2 Litigation Risk 39
III.3 Company’s Ownership Structure 41
III.4 Behavioral Finance 43
III.5 Information Momentum 45
IV Discussion 46
V Conclusion 49
Chapter II: How Do Pre-IPO Shareholders Determine Underpricing? 51
I Introduction 51
II Related Literature and Development of Hypothesis 52
III Research Design 56
III.1 Sample Selection and Data Sources 56
III.2 Definition of Variables 57
III.3 Definition of Hot and Cold Periods 63
IV Empirical Results 63
IV.1 Firm and Transaction Characteristics 63
IV.2 Pre-IPO Ownership Characteristics 69
IV.3 Regression Analysis 74
IV.3.1 Variables Explaining IPO Underpricing 74
IV.3.2 Determinants of IPO Underpricing in 1997-2001 and 2002-2007 79
IV.3.3 Pre-IPO Ownership and Underpricing in Different Market Phases 83
IV.3.4 Pre-IPO Ownership and Underpricing with Positive Investor’s Information 88
V Conclusion 96
Chapter III: Do “Herding” Effects on Firm Multiples Determine IPO Valuation? 97
I Introduction 97
II Related Literature and Development of Hypotheses 98
III Research Design 102
III.1 Sample Selection and Data Sources 102
III.2 Methodology and Definition of Variables 103
IV Empirical Results 108
IV.1 Descriptive Statistics of Firm and Market Characteristics 108
IV.2 IPO’s and Comparable Firm Multiples 114
IV.3 IPO Valuation 124
IV.3.1 Regression Estimates on IPO Valuation 124
IV.3.2 IPO Valuation in Hot and Cold Markets 127
IV.3.3 Information Asymmetries and IPO Valuation 132
V Conclusion 136
Conclusion 139
References 141
Appendix: Chapter I 153
AI Information Asymmetries between Issuer and Investor 153
A I.1 Signalling Theory 153
A I.2 Certification of Quality 156
AII Information Asymmetries between Investors 160
A II.1 The Winner’s Curse 160
A II.2 Information Revelation 164
AIII Information Asymmetries between Issuer andInvestor 166
AIV Symmetric Information 166
Appendix: Chapter II 173
Appendix: Chapter III 175