Australian IPO underpricing, offer mechanisms and the option to withdraw during the premarket : an empirical analysis

Maclaine, Duncan. (2002). Australian IPO underpricing, offer mechanisms and the option to withdraw during the premarket : an empirical analysis Honours Thesis, School of Economics, The University of Queensland.

       
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Author Maclaine, Duncan.
Thesis Title Australian IPO underpricing, offer mechanisms and the option to withdraw during the premarket : an empirical analysis
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2002
Thesis type Honours Thesis
Total pages 103
Language eng
Subjects 14 Economics
Formatted abstract This paper presents an empirical study of IPOs occurring in Australia between 1999 and 2001. Many different aspects of IPOs are analysed. Underpricing of IPOs is well documented in almost every equity market worldwide. In Australia average underpricing of 27.41% is found based on a sample of 303 stocks. Empirical analysis reveals that the choice of underwriter, the proportion of secondary shares in an offer, the degree of retained ownership, the timing of the offer and the performance of the general stock market during the float process are the main explanatory variables for the observed underpricing. Contrary to the existing evidence on Australian IPOs, industrial IPOs are found to be significantly more underpriced than resource IPOs. The results of the analysis have implications for a number of the theoretical models of underpricing.

Additionally, this paper compares the characteristics and pricing outcomes of firms that conduct their IPQ as a bookbuild with firms that make a fixed price offer. There are clear differences in the characteristics of the firms whose directors chose the alternative offer types. No difference in underpricing, either on a univariate or multivariate basis, is found between the two mechanisms. This result is inconsistent with much of the theoretical literature regarding the pricing outcomes of the two offer types but consistent with some of the empirical findings from other IPQ markets.

Finally, issuers have the option to cancel their offerings at any time during the premarket. Using probit analysis a comparison is made between those firms that withdrew their issue and those that went ahead. Withdrawn offerings are found not to be smaller than successful offerings or less profitable, have less assets or revenues. The likelihood of withdrawal is associated with the choice of underwriter, the industry sector and returns on the secondary market.

Before this study, no prior research in Australia regarding the pricing outcomes of fixed price and bookbuild offers or the option to withdrawal existed.

 
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