Chuntai Jin, Tianze Li, Steven Xiaofan Zheng and Ke Zhong
The purpose of this paper is to answer the following three questions about the new capital raised in initial public offerings (IPOs): why do some IPO companies raise a lot of new…
Abstract
Purpose
The purpose of this paper is to answer the following three questions about the new capital raised in initial public offerings (IPOs): why do some IPO companies raise a lot of new capital while some others do not? Where do the IPO companies use the new capital they raise in IPOs? How does the use of new capital affect the operating performance of IPO companies?
Design/methodology/approach
Matching firm approach, univariate and regression tests.
Findings
This paper finds that companies with higher research and development (R&D) spending, higher capital expenditure, lower working capital and more long-term debt tend to raise more capital in IPOs. These firms also spend more on R&D and capital expenditure. The results also suggest that the more the new capital firms raise in IPOs, the lower operating performance they have in subsequent years. However, firms spending more new capital on R&D and capital expenditure seem to perform better.
Originality/value
These results help us understand the behavior of IPO firms.
Details
Keywords
Ying Huang, Xiankui Hu, Kenneth Hunsader and Steven Xiaofan Zheng
The authors of this study aim to investigate possible explanations of the prevalence of price clustering in the final offer prices of mergers and acquisitions (M&A).
Abstract
Purpose
The authors of this study aim to investigate possible explanations of the prevalence of price clustering in the final offer prices of mergers and acquisitions (M&A).
Design/methodology/approach
The authors use final offer price in M&A deals to investigate the price clustering phenomena. The authors used regressions and logistic regressions to examine potential factors that might affect pricing strategy by looking into one-time acquirers and experienced serial acquirers.
Findings
Price clustering increases with negotiation uncertainties characterized as competitive bidding, number of bidders, challenged deals and duration. Moreover, the authors find persistent price clustering in experienced serial acquirers that are more experienced and better equipped with handling uncertainties, suggesting a preference of using round numbers regardless of levels of uncertainties. The authors' evidence shows that price clustering results from a combination of Harris' (1991) costly negotiation hypothesis where round prices may be used to lower search costs and psychological bias and preference.
Originality/value
The authors appear to be the first to investigate alternative theories that support M&A offer price clustering behavior, finding that both the costly negotiation and psychological bias and preference theories apply to M&A final price formation. Thus, the authors' major contribution, specific to the M&A process, is a clarification of physical and psychological factors associated with bidding and negotiation behavior. The authors are confident that the authors' study impacts conventional knowledge regarding M&A deal negotiation strategies, including bidding behavior, contract negotiation, financial analysis, management practices and risk management.
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Keywords
Mingsheng Li, Steven Xiaofan Zheng and Melissa V. Melancon
To test the effects of underpricing and share retention (i.e. the proportion of shares retained by the pre‐initial‐public‐offering (IPO) owners) on IPO aftermarket liquidity.
Abstract
Purpose
To test the effects of underpricing and share retention (i.e. the proportion of shares retained by the pre‐initial‐public‐offering (IPO) owners) on IPO aftermarket liquidity.
Design/methodology/approach
Uses both percentage spread and turnover ratio to measure liquidity. The percentage spread is the quoted bid‐ask spread divided by the quoted midpoint and measures the trading cost relative to share price. Turnover ratio is the daily trading volume divided by the number of shares offered and measures the speed of transaction. Both non‐parametric analyses and multiple regressions are conducted to investigate the effects of underpricing and share retention on liquidity.
Findings
Results indicate that initial return is positively related to turnover ratio and negatively related to percentage spread. These relations are significant even after controlling for other factors. Also finds that the pre‐IPO owners’ retention rate is positively related to turnover ratio and negatively related to percentage spread. High retention rates attract more trades, provide quality assurance, and improve IPO aftermarket liquidity.
Originality/value
This paper investigates the theoretical links between underpricing and liquidity and provides direct evidence on Booth and Chua's liquidity theory. In addition, this is one of the first empirical studies to analyze the effect of share retention on aftermarket liquidity.