I-2-2\ Theory asserting informational symmetry and IPO
market efficiency:
I use the main characteristic of Initial Public Offerings,
«risk» related to technological or valuation uncertainty and I use
many measures:
Ø The issuing firm size reflects the valuation
uncertainty risk: Ln (sales), Ln (assets).
Ø The issue risk, a dummy variable taking a value of
one if the firm operates in a risky industry and zero otherwise, a variable
reflecting technological risk which induces a valuation uncertainty.
Ø The age of the issuing firm: Ln (1+age) (age is
number of years since the firm's founding date to the date of going public and
the date of introduction in IPO market).
Ø I use also some financial data as proxies for
valuation uncertainty risk: firm profitability and ROA.
Almost the empirical studies introducing risk find a positive
relation between risk and underpricing: Riskier firms set a low offer price to
incite investors to participate in the IPO market and to buy the IPO risky
shares, and a high offer price will dissuade them. However, a study of Bartov,
Mohanram and Seethamraju (2003) reports that there is no correlation between
risk and underpricing. This finding refutes the prior researches and results
about the suitability of the risk as an explanation to the underpricing
anomaly. And I use this variable with many measures to verify if risk can be
considered as a relevant explanation to short run IPO anomaly.
I use another determinant of the symmetric information theory:
the issue size calculated as the natural logarithm of the net expected
proceeds. Previous researches report a negative and statistically significant
relation between size and offer price, so we can talk about a positive and
significant relation between issue size and underpricing (Cornelli, Goldreich
and Ljungqvist (2004)). Other researches find a negative relation between issue
size and underpricing, explaining this by the fact that sizable firms are
generally less risky than those making smaller issues, then issuers can bargain
a higher offer price conducting a lower level of underpricing.
I also introduce the issuer bargaining power as a variable in
the theory asserting the informational transparency and lucidity, with three
proxies to have an idea about the ownership structure: insiders' ownership,
institutional ownership and blockholders' ownership prior to the offering.
The main result found in the earlier studies, the greater is
the ownership concentration, the greater is the issuing firm's bargaining
power, the higher is the offer price and the lower is the first-day return and
vice-versa. But Loughran and Ritter (2004) argue that this argument
has little support as an explanation for underpricing.
I introduce another control variable «Time dummy»: a
dummy variable taking the value of 1 if the IPO date is after July 2007, and
zero otherwise. This variable is used to control the beginning of financial
crisis period and its impact on underpricing.
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