The article explains that most studies about initial public offering (IPO) are conducted in the US context. Promoting a successful IPO is a goal for many business organizations to attract institutional investors and improves stock exchanges. The author recommends integrating new aspects of financial strategies like informational asymmetries, rightful ownership, and venture capitalism into the discourse. Despite the intention to examine the IPO market world, certain failures emerge and bother leaders and managers. The article introduces a critical review of academic literature to find out how finance executives should make helpful public decisions. The IPO process is determined by a proper understanding of such factors as ownership and the level of control, intermediates who participate in investment activities, effective pricing, and the quality of the information in management.
In the article, several strategies to reduce unnecessary data asymmetry and underpricing are concluded. For example, organizations should be ready to go beyond the corporate governance requirements to satisfy investors. Another recommendation includes the background of low floating charges, which allows lessening underpricing. Although the study covers a broad topic and approaches to improve the financial situation and IPO processes, there is an evident scope for future work about valuation, pricing, and institutional investments. I think that the author succeeds in explaining the main idea of IPO firms and market factors that play an important role in decision-making. However, it is hard to see a clear plan in terms of which specific improvements may be achieved at the moment. Therefore, this article may be a solid background for a new study but remains a limited source of information about pricing issues and the correct institutional investment outcomes.
The author is interested in discussing the reasons for the long-run performance of IPOs. Firstly, price patterns create new opportunities for trade strategies in order to promote effective returns. Secondly, market prices can be changed due to informational efficiency. Finally, it is hard to control all IPO processes over different periods of time. There are certain time- and industry-dependent factors that do not make it possible for companies to perform IPOs properly. The author believes that some bad luck should not be ignored and chooses the long-run IPO underperformance as a phenomenon for the current study to elucidate the peculiarities of the investors’ work. A 3-year experience with 1,526 IPOs between 1975 and 1984 was described in the article. There were five criteria (offer price, gross proceeds, offering, company, and investment banker) to include a process into analysis and two measures (cumulative average and buy and hold returns) to evaluate performance.
One of the main results is that the cumulative average adjusted return is about -30% and should be adjusted to different benchmarks like the NASDAQ index or Amex-NYSE index. Besides, the industry where a company offers its services and its size also affects the quality of performance. The author discovers that organizations with small growth may not face a serious cost of equity capital and achieve more successful outcomes with time. There are so-called windows of opportunity that managers create to rush to the market and set optimistic expectations. Unfortunately, several issues were not properly resolved in the article. For example, the author did not describe a tendency according to which the underperformance occurred. Most findings were general and based on the opinions of other authors, limiting the worth of original research. I find the empirical evidence of the study as weak because the causes of high initial returns are not clarified in a clear way.
Many entrepreneurs and researchers pay much attention to the evaluation of IPOs and the returns for investors under different conditions. In this article, the authors focus on the conditions under which firms decide to go public and participate in the battles of investors. Each time, a new organization has to deal with several tasks. First, it is necessary to succeed in pricing the IPO because investors have limited knowledge about the company and its efficiency and cannot predict the changes in prices before and after the stock. Another problem touches upon the trading price and the impossibility of learning what financing may be required. The last concern is about the content that becomes available to all investors with time. Underpricing results vary in companies, and this article investigates the peculiarities of Canadian organizations and their IPO pricing policies and long-term performance.
One of the vital strengths of the current study is using empirical evidence from publicly available information. The review of the literature is a common method to answer the main research question about what defines the quality of IPO performance. The authors recommend two methodologies: Ritter’s arithmetic approach (IPO returns consist of cumulative abnormal returns and benchmark portfolio returns) and the wealth creation/depletion geometric approach (invest in benchmark portfolios). Still, I notice such shortages the failure to analyze an existing variety of explanations of underpricing and no theoretical framework. A lack of this information and a small sample size challenge the Canadian results. Identifying two appropriate methodologies to examine IPO processes in Canadian organizations and explaining the value of IPO status help the reader define another credible perspective about hot IPO markets. The article relates to other studies as it contributes to understanding the reasons for raising equity capital and exit mechanisms owners might use for harvesting investments.
In this article, the author admits that the relationship between IPO valuation, price support, and returns has been poorly investigated, with only one theoretical explanation that underwriters can use high prices only with approved laddering. Therefore, the goal is to extend the approach and use more companies that go public. There are two main hypotheses in the study: to prove that price support IPOs decline in short-term returns and to demonstrate a negative connection between price support and returns. The chosen sample included 114 organizations in Turkey, and their information was obtained from the regulatory authority, the Capital Markets Board (SPK). Price support data was gathered from post-issue material to formulate a hand-collected report. Several statistical tests were developed to analyze the relationships between the chosen variables. The standard event methodology was implemented to create formulas for the cumulative abnormal returns and market-adjusted buy-and-hold returns.
Using multivariate regression models, the author proved that price support performs the function of valuation bias. In addition, it was shown that IPOs that implement price support have lower initial returns and higher valuation bias compared to IPOs without price support. This valuation bias increases the necessity of promoting price support and controlling selection bias that may be related to offering price. Although the study could serve as a solid contribution to recognizing the worth of underwriters’ valuation and price support, the goal of expanding the theoretical framework is poorly recognized. Price stabilization has potential for primary and secondary investors, regulators, and some market players, but researchers could not find enough material about why IPOs are constantly overvalued in short-term returns. Anyway, I consider this study significant empirical evidence for IPO pricing strategies.