The economical development is improving and world trade volumes are expected to recover. The recorvery process is developing constantly but slowly: Share prices have rebounded within 2009, worldwide trade volumes have recovered slightly and are expected to catch up with values from the end of 2008 during the next year (cf. OECD 2009).
The world is recovering from one of the most severe economic downturns since The Great Depression. Comparing GDP volumes from the previous period at the same time, OECD countries lost up to 2%.
As a logical consequence the U.S. IPO market has been affected by the economic meltdown as well. "IPO activity tends to cluster in certain time periods, thus it appears in waves, so-called hot IPO markets" (Hamer 2007, 9). From 2007 to 2008 th e number of IPOs decreased. The U.S. market broke down by more than 85% in one year. In 2007 there were 160 IPOs whereas in 2008 21 securities went public fort the first time (cf. Ritter 2010, 2). After the slowest year for IPOs since the 1970s, the market began to show signs of life again in 2009. The number of offerings increased by 21% although the offering value decreased by almost 15% (cf. PWC 2010). [...]
Table of Contents
1 INTRODUCTION
2 INITIAL PUBLIC OFFERINGS AND THEIR UNDERPRICING
2.1 THE IPO
2.2 GOING PUBLIC IN THE U.S.
2.2.1 THE IPO PROCESS - PREPARATION AND FACTORS OF SUCCESS
2.2.2 PARTICIPANTS AND THEIR ROLES
2.3 IPO UNDERPRICING
2.3.1 DEFINITION
2.3.2 WHO BENEFITS FROM IPO UNDERPRICING?
2.3.3 EVIDENCE ON UNDERPRICING
3 THE REPUTATION OF MARKET SEGMENTS IN THE CONTEXT OF IPO UNDERPRICING
3.1 MARKET SEGMENTATION IN THE UNITED STATES
3.2 THE REPUTATION OF MARKET SEGMENTS
4 LISTING REQUIREMENTS IN THE U.S. AND THEIR POTENTIAL IMPACT ON MARKET REPUTATION
4.1 THE SEC AND ITS REQUIREMENTS
4.1.1 INITIAL REGISTRATION
4.1.2 PERIODICAL REQUIREMENTS
4.2 LISTING REQUIREMENTS AT NYSE EURONEXT MARKETS
4.2.1 INTRODUCTION TO NYSE EURONEXT
4.2.2 CORPORATE GOVERNANCE
4.2.3 NEW YORK STOCK EXCHANGE
4.2.4 ARCA
4.2.5 AMEX
4.3 LISTING REQUIREMENTS AT NASDAQ OMX MARKETS
4.3.1 INTRODUCTION TO THE NASDAQ OMX GROUP
4.3.2 CORPORATE GOVERNANCE
4.3.3 THE GLOBAL SELECT MARKET
4.3.4 THE GLOBAL MARKET
4.3.5 THE CAPITAL MARKET
4.4 COMPARISON AND POSSIBLE IMPLICATIONS ON THE UNDERPRICING
5 EMPIRICAL ANALYSIS
5.1 DATA BASE AND METHODOLOGY
5.2 SAMPLE DESCRIPTION
5.3 THE SPECIFIC UNDERPRICING IN EACH MARKET SEGMENT
5.4 THE UNDERPRICING AT NYSE EURONEXT AND NASDAQ OMX MARKET SEGMENTS - AN AGGREGATED COMPARISON
5.5 REGRESSION ANALYSIS
5.4.1 THE REGRESSION MODELS
5.4.2 RESULTS AND DISCUSSION
5.6 SUMMARY OF THE EMPIRICAL ANALYSIS
6 CONCLUSION
Research Objectives and Focus
This thesis investigates the phenomenon of IPO underpricing in U.S. stock markets, specifically examining how the reputation of different market segments acts as a determinant for underpricing levels. The primary research goal is to test "The Market Reputation Thesis," which suggests that the reputation of a market segment, influenced by factors such as listing requirements, historical performance, and media presence, correlates with the degree of underpricing experienced by firms listing within that segment.
- Analysis of the IPO process and the determinants of market segment reputation.
- Comprehensive review of listing requirements across NYSE Euronext and NASDAQ OMX segments.
- Empirical analysis of 202 IPO observations to identify underpricing patterns.
- Assessment of the correlation between market segment reputation and IPO underpricing.
- Regression analysis integrating exogenous variables like market trends, industry type, and financial health.
Excerpt from the Book
2.3.1 DEFINITION
In literature there are several understandings of the underpricing of IPOs.
Ideally, stock prices should match the per share present value of the discounted future earnings of the company, theoretically paid out as dividends. (cf. Karlis 2000, 82) "Most literature describes underpricing as the difference between the fair value of the company and the offer price, making the price movements on the first trading day the adaption process to the fair valuation. The term "underpricing" originates from U.S. academic literature dating back to the 70s and basically describes the phenomenon of a price movement of newly issued shares after the offering" (Hamer 2007, 8). Usually this price movement manifests itself in an increase of the stock price right after the sale and thus involves a positive effect for the investor. (Own research) Illustration 3 will clarify this effect.
"Underpricing is estimated as the percentage difference between the price at which the IPO shares were sold to investors (the offer price) and the price at which the shares subsequently trade in the market. Most studies use the first-day closing price when computing initial underpricing returns" (Ljungqvist 2006, 6).
However, Hunger uses the first day opening price:
"The term underpricing implies that the issue price, compared with the (first) secondary price, is too low" (Hunger 2004, 43). "The Underpricing-Phenomenon examines the price difference between primary and secondary market trading. Thus, ideally the first secondary market price is used for the computation, because with its finding the secondary market trading begins. Albeit, because of missing availability, often the first day closing price is used to determine the underpricing" (Hunger 2004, 41).
Summary of Chapters
1 INTRODUCTION: This chapter introduces the economic climate and the U.S. IPO market, highlighting the prevalence and relevance of IPO underpricing.
2 INITIAL PUBLIC OFFERINGS AND THEIR UNDERPRICING: This chapter defines the IPO process, discusses the motivations for going public, and examines the theoretical underpinnings and definitions of underpricing.
3 THE REPUTATION OF MARKET SEGMENTS IN THE CONTEXT OF IPO UNDERPRICING: This chapter explores how market segmentation and the perceived reputation of these segments influence the IPO process and underpricing.
4 LISTING REQUIREMENTS IN THE U.S. AND THEIR POTENTIAL IMPACT ON MARKET REPUTATION: This chapter details the regulatory frameworks and listing standards of NYSE Euronext and NASDAQ OMX markets to analyze their reputational impact.
5 EMPIRICAL ANALYSIS: This chapter presents the data base, methodology, and statistical regression results to analyze the relationship between market segments, firm characteristics, and underpricing.
6 CONCLUSION: This chapter summarizes the findings regarding The Market Reputation Thesis and acknowledges the complexities of the IPO underpricing phenomenon.
Keywords
Initial Public Offering, IPO, Underpricing, Market Reputation, Stock Market Segments, NYSE Euronext, NASDAQ OMX, Listing Requirements, Corporate Governance, Financial Analysis, Regression Analysis, Market Segmentation, U.S. Stock Markets, Equity Capital, Market Regulation.
Frequently Asked Questions
What is the core subject of this thesis?
The thesis examines the phenomenon of IPO underpricing in the United States, specifically exploring the link between the reputation of different stock market segments and the level of underpricing.
What are the central thematic areas?
The work covers IPO procedures, the concept of corporate and market reputation, the regulatory listing requirements of major U.S. exchanges, and empirical financial analysis.
What is the primary research question?
The primary objective is to find confirmation for "The Market Reputation Thesis," which posits that there is a correlation between the reputation of a stock exchange segment and the level of underpricing of firms listed within it.
Which scientific methods are utilized?
The research employs both a theoretical analysis of market standards and an empirical quantitative analysis, utilizing linear multiple regression based on the method of ordinary least squares to test various influencing factors.
What topics are covered in the main section?
The main section details the IPO process, breaks down the regulatory environment (SEC, NYSE, NASDAQ), compares listing requirements across segments, and presents an empirical study of over 200 IPO observations.
Which keywords best characterize this work?
Key concepts include IPO underpricing, market reputation, market segmentation, listing requirements, corporate governance, and empirical regression analysis.
How does the author define "underpricing" in this study?
The author considers underpricing as an ex-post phenomenon, calculated by comparing the issue price with the first day's trading price (opening or closing) to determine the shift in wealth.
What role does "company size" play in the author's argument?
Company size is identified as a potential sub-factor that influences the reputation of a market segment, which in turn is hypothesized to affect the level of underpricing for new entrants.
- Arbeit zitieren
- Claus Birkenbeul (Autor:in), 2010, The Specific Underpricing of IPOs in U.S. Stock Markets, München, GRIN Verlag, https://www.hausarbeiten.de/document/158711
