Systematic risk, general market factors and underpricing of the IPOs.

摘要

This dissertation focuses on two main areas pertaining to the underpricing of initial public offerings (IPOs). First, the study examines the problem of IPOs' underpricing and its relation to the ex ante uncertainty. In this study, two more factors are introduced as proxies for ex ante uncertainty: systematic risk and the range in the preliminary offering prices. But systematic risk cannot be computed for private firms; hence, two variables are used as proxies for systematic risk: accounting beta and debt ratio. The results of the simple regression show a positive relationship between accounting beta and the degree of IPOs' underpricing. On the other hand, using a sample of 1053 IPOs, the results show insignificant association between systematic risk when represented by IPOs' debt ratio and the IPOs' underpricing. The second factor introduced in this study as a proxy for ex ante uncertainty is the range in the preliminary offering prices. The results of the simple regression using 1053 IPOS do not support the hypothesis that there is a positive relationship between the range of the preliminary offering prices and the initial return of the IPOs.; The second area examined in this study concerning the IPOs' underpricing is the variations in underpricing over time and among industries. Because of these variations, we argue that the underwriter's intentional underpricing, which is due to firms' specific risks, is not the only justification for underpricing the IPOs. The study argues that in addition to the underwriter's intentional underpricing, which is related to ex ante uncertainty, general market factors pertaining to all IPOs are major contributors in explaining IPOs' underpricing. Industry performance is used as a proxy for the general market factors. All firms in the NASDAQ and in the S&P Super Composite Index are classified into industries based on their two-digit SIC code. Performance for each industry using the NASDAQ and the S&P Super Composite Index is then computed for the six months preceding the public offering of any firm in these industries. Using a sample of 1053 firms, the results of the simple regression show a positive relationship between industry performance and initial return of IPOs whether we use industry performance based on the NASDAQ or on the S&P Super Composite Index. The results imply that the degree of IPOs' underpricing not only is justified by the degree of ex ante uncertainty but also is explained by the general market factors that are common to all IPOs.; Finally, a multiple regression is performed where the initial return is regressed with respect to six independent variables: accounting beta as a proxy for systematic risk, industry performance as a proxy for general market factors, IPO size, IPO age, underwriter prestige and the proportion of stocks retained by the entrepreneur in the IPO after the public offering. The results using White Heteroscedasticity-Consistent Covariance Matrix Estimator show that systematic risk and general market factors hold significant explanatory powers similar to those attained in the simple regression. (Abstract shortened by UMI.)