• The Journal of Asian Finance, Economics and Business
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• v.8 no.7
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• pp.375-381
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• 2021

Underpricing signifies that IPO share prices do not reflect the fundamental value of the listed company. Corporate governance plays an essential role in IPOs where the board of directors, the independent board of directors, and the board of supervisors are significant elements of accurate share pricing. The study investigates the underpricing phenomena and short-term performance of the IPO companies during the listing process in the Ho Chi Minh Stock Exchange (HOSE). The work outcomes illustrate the role of the corporate organizational structure in the period of the IPO process that may attract potential investors. The hypothesis testing is conducted with a multiple regression model including 100 observations from enterprises doing IPO listed on HOSE. The study results generate signals for the investors and regulators that the board of directors holds a strong negative influence on the underpricing process. Secondly, the level of the independent board of directors and stock exchange in itself has no significant impact on the underpricing process. Underpricing is one of the many anomalies of the stock exchanges that provide wrong signals for the market participants. Identifying stock prices that reflect their intrinsic value is an ongoing debate among scholars, investors, and other market participants.

• Journal of Korean Society of Industrial and Systems Engineering
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• v.23 no.57
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• pp.41-49
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• 2000

This paper investigates the relation between operating performance and initial underpricing of companies that go public. A significant decline in operating performance subsequent to the initial public offering(IPO) is found. Additionally there is a significant positive relation between post-IPO operating performance and the level of initial underpricing.

• The Korean Journal of Financial Management
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• v.13 no.1
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• pp.285-309
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• 1996

Using initial public offerings of 512 UK companies newly admitted to London Stock Exchange between 1985 and 1990, we explored the reason of underpricing of new issues. We particularly examined the underpricing of new issues in terms of signalling hypothesis. We found that there is a positive relationship between the value of the issuing firms and the fraction of equity retained by entrepreneurs. This finding is consistent with Leland and Pyle's model(1977) and the evidence of Downes and Heinkel(1982). We also found a positive association between the firm value and the degree of underpricing. In addition, our empirical evidence revealed that the underpricing of the UK IPOs is positively related to the fraction of equity retained by the original shareholders. Thus, our results support Grinblatt and Hwang's model(1989) which predicts a positive relationship between the value of firm and the degree of underpricing.

• The Journal of the Korea Contents Association
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• v.18 no.3
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• pp.557-567
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• 2018

This paper studies the relationship between general investors' allotment ratio and underpricing for the companies that were newly listed in KOSDAQ market after the 20% rule, from March 2004 to December 2013, by empirical analysis. It is shown that the excess allotment ratio over 20% has a strong explanatory power for underpricing ratio under the 1% significance level. Furthermore, the general investors' allotment ratio is a significant explanatory variable of underpricing ratio under the 5% significance level. There are many hypotheses about underpricing, however, if underpricing is evident with high allocation ratio for general investors, it can be regarded as a signal of company's confidence in earnings after listing. In conclusion, this study reveals that general investors' allotment ratio can be used as a major explanatory variable that has a significant effect on the degree of undervaluation in the IPO market.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.13 no.1
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• pp.156-163
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• 2012

The price stabilization policies which require the underwriters to maintain post-IPO prices at some level (stabilization duty) or give put-back options to investors, have survived for eight years until June, 2006. The purpose of this study is to analyze the effect of price stabilization policies upon IPO underpricing in KOSDAQ. The study decomposes the influence of the price stabilization policies on IPO underpricing into ex-ante and ex-post effect. The price stabilization policies have shown to increase the IPO underpricing both at ex-ante and ex post bases. And the ex-ante effect is greater than ex-post effect. Among policies, the price stabilization duty magnifies the underpricing more than put-back option. This study differentiate from the precedented studies by including the whole period in which those policies are in act and by decomposing the IPO underpricing effects into ex-ante and ex-post bases.

• The Journal of Industrial Distribution & Business
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• v.13 no.2
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• pp.45-57
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• 2022

Purpose: This paper examines whether or not universal banking operating in the asset management business tend to IPO underpricing when they are hosting IPOs in favor of their private interests. Previous studies suggest evidence which indicates that the universal banking operating in the asset management business tend to underestimate offering prices. This paper compares and analyzes the data before and after June 2007 to examine the influence of put-back option on IPO underpricing. Research design, data, and methodology: This paper compares the underwritten prices of IPOs of universal banking with and without asset management business in Korea in order to test such tendency actually exists. Result: We can find that such tendency is not correlated with first-day stock returns but correlated with put-back options. Our paper concludes that the hypothesis that "the universal banking's subsidiary asset management business influences the IPO underpricing" is found to be statistically insignificant. Conclusion: According to our analysis, it cannot be concluded that the interests of operating asset management do not conflict with the ones of underwriting business. However, it is so possible that the asset management companies try to harm the customers' interests, for instances churning and stuffing, it is necessary to scrutinize their behaviors and review the related regulations.

• The Korean Journal of Financial Management
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• v.23 no.1
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• pp.135-163
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• 2006

Using a unique data set from a sample of 343 IPOs during the period from January 2001 to September 2003 in the KOSDAQ stock market, this paper investigates how a firm's pre-IPO relationship with a bank affects the firm's IPO underpricing phenomenon. Contrary to the findings by James and Wier (1990) using the U.S. data, we find no evidence that a pre-IPO banking relationship can help reduce IPO underpricing. On the other hand, we find that firms without pre-IPO banking and venture capitalist relationship have the smallest abnormal returns. Our results suggest that the KOSDAQ market participants positively perceive firms with pre-IPO banking and venture capitalist relationship as good quality firms and demand more issues when they go public. It also suggests that in the Korean IPO market, there has been over demand for issues of firms, which have had pre-IPO relationships with banks and venture capitalists.

• Asia-Pacific Journal of Business
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• v.8 no.2
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• pp.1-14
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• 2017

Initial public offering (IPO) has been well known to be underpriced initially and under-performed in the long run. However, whether an IPO is underpriced or not strongly depends on how to measure the fair value. This paper hand collects data of IPOs newly listed in Korea market when whether IPO is overpriced or not is clearly distinguishable. The overpriced IPO refers to as the one the underwriters buy back after the listing. With the data, the paper examines that IPOs are overpriced and that the characteristics are related to the underpricing at the aftermarket dates and the performance in the long run. The data of clearly overpriced IPOs are little available from other IPO markets like US IPO market. From the data of IPOs listed under the underwriting rule of market stabilization, the results obtainable are the followings. First of all, the average initial return 70% of the underpriced IPO at the aftermarket dates is greater than the one 40% of the overpriced one. The overpriced IPOs are priced highly over the mid prices of the price bands at the pricing dates and then supported by relatively higher subscription rates of individual investors. The probit analyses moreover report that individual investors do not distinguish the overpricing of IPOs from the underpricing. These imply that the overpricing is strongly affected by the underwriting rule on the initial pricing.

• The Korean Journal of Financial Management
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• v.20 no.1
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• pp.233-260
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• 2003

This paper compares the underpricing of IPOs listed on KOSADQ with that of IPOs listed on KSE. When we consider the last day of upper price limit of IPOs, IPOs on KSE show higher initial excess return than IPOs on KOSDAQ. And AR2 which is the abnormal return based on the stock price of the last day recording upper limit after listing, IPOs on KOSDAQ exhibit larger abnormal return than IPOs on KSE. Our study also reports that the long-term performance of IPOs in two markets does not show any difference. That is, IPOs of both markets under performed in the long-run. The wealth relatives of IPOs are a little higher than market portfolio. We explored the reasons of the underpricing of IPOs in both markets through the multiple regression analysis. The business history is examined asstatistically significant variable to explain the underpricing.

• KDI Journal of Economic Policy
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• v.12 no.2
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• pp.95-120
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• 1990

The underpricing of new shares of a firm that are offered to the public for the first time (initial offerings) is well known and has puzzled financial economists for a long time since it seems at odds with the optimal behavior of the owners of issuing firms. Past attempts by financial economists to explain this phenomenon have not been successful in the sense that the explanations given by them are either inconsistent with the equilibrium theory or implausible. Approaches by such authors as Welch or Allen and Faulhaber are no exceptions. In this paper, we develop a signalling model of capital investment to explain the underpricing phenomenon and also analyze the efficiency of investment. The model focuses on the information asymmetry between the owners of issuing firms and general investors. We consider a firm that has been owned and operated by a single owner and that has a profitable project but has no capital to develop it. The profit from the project depends on the capital invested in the project as well as a profitability parameter. The model also assumes that the financial market is represented by a single investor who maximizes the expected wealth. The owner has superior information as to the value of the firm to investors in the sense that it knows the true value of the parameter while investors have only a probability distribution about the parameter. The owner offers the representative investor a fraction of the ownership of the firm in return for a certain amount of investment in the firm. This offer condition is equivalent to the usual offer condition consisting of the number of issues to sell and the unit price of a share. Thus, the model is a signalling game. Using Kreps' criterion as the solution concept, we obtained an essentially unique separating equilibrium offer condition. Analysis of this separating equilibrium shows that the owner of the firm with high profitability chooses an offer condition that raises an amount of capital that is short of the amount that maximizes the potential profit from the project. It also reveals that the fraction of the ownership of the firm that the representative investor receives from the owner of the highly profitable firm in return for its investment has a value that exceeds the investment. In other words, the initial offering in the model is underpriced when the profitability of the firm is high. The source of underpricing and underinvestment is the signalling activity by the owner of the highly profitable firm who attempts to convince investors that his firm has a highly profitable project by choosing an offer condition that cannot be imitated by the owner of a firm with low profitability. Thus, we obtained two main results. First, underpricing is a result of a signalling activity by the owner of a firm with high profitability when there exists information asymmetry between the owner of the issuing firm and investors. Second, such information asymmetry also leads to underinvestment in a highly profitable project. Those results clearly show the underpricing entails underinvestment and that information asymmetry leads to a social cost as well as a private cost. The above results are quite general in the sense that they are based upon a neoclassical profit function and full rationality of economic agents. We believe that the results of this paper can be used as a basis for further research on the capital investment process. For instance, one can view the results of this paper as a subgame equilibrium in a larger game in which a firm chooses among diverse ways to raise capital. In addition, the method used in this paper can be used in analyzing a wide range of problems arising from information asymmetry that the Korean financial market faces.