The Long-Run Performance of Initial Public Offerings

• Main Authors: HSIU-CHIN KUNG, 孔秀琴
• Other Authors: Cheng-Yi Shiu
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/81138639521457634328

碩士 === 中華大學 === 經營管理研究所 === 93 === Finance literature has documented that the long-run underperformance of initial public offerings is mainly attributed to the “earnings management” hypothesis and the “investor sentiment” hypothesis. The hypothesis of “earnings management” posits that, due to information asymmetry between investors and issuing firms, managers of issuing firms have incentives to help founders realize their profits at higher offering price by manipulating earnings at the IPO stage. Because the higher accruals at the IPO stage are borrowed from the earnings in the following years, the stock prices are more extent of earnings management. This hypothesis predicts a negative relative relation between earnings management of IPO firms and their long-run performance. Alternatively, the hypothesis of “investor sentiment” argues that the irrational investors are influenced by the market hotness and therefore are overly optimistic about IPO’s and their long-run underperformance. This hypothesis predicts the association of higher market valuations of IPOs in hot market and worse price performance. This paper examines the 783 Taiwanese IPOs which went to public from 1991 to 2002. This study sheds light on the question: which one of the hypotheses has stronger explanation for the variation of the long-run performance of IPOs? Furthermore, this study examines the relation of “earnings management” with “investor sentiment” as well. Finally, this study will investigate with the IPO’s earnings management and investor sentiment. We conclude that “investor sentiment” hypothesis can explain the initial returns of IPOs. “Earnings management” hypothesis is prediction of the long-horizon post-issuing performance.