The study on the price performance of IPO stocks under the newly effective system in Taiwan

• Main Authors: Chiu, Chien-wei, 邱建偉
• Other Authors: Kehhsiao Lin
• Format: Others
• Language: zh-TW
• Published: 1998
• Online Access: http://ndltd.ncl.edu.tw/handle/21266172105405343023

碩士 === 國立臺灣大學 === 財務金融學系研究所 === 86 === It has been two years since auction was applied as the new underwriting system of initial public offerings (IPO) in Taiwan. The original purpose of implementing the auction system is to reform the old, frequently criticized lottery system in terms of pricing and stock distribution. The current "auction" system, however, is actually an auction-lottery combination system, with 50%-50% split in total shares and a cap of 150%-auction-base-price used as the lottery price. As more and more firms and investors participate the auction system in IPO, many other questions are brought up. Unlike previous literature that address more on the legal structure side of the system, this thesis intends to study these questions by investigating the performance difference of the daily stock prices of the IPO companies that use auction and that do not. Three major methods are used: interview with the decision making participators in sample IPO cases, descriptive statistics of the sample IPOs, and regression models. The major findings of this thesis are as follows. 1. The auction system does reduce abnormal return performance period of sample IPOs, as originally intended. However, it does not shorten the so-called "honeymoon period" in IPO due to the application of the aforementioned price cap. 2. The main benchmark of pricing is still the old fashion "SEC formula". In addition to the formula, market condition and the grouping of industry are also proved to be crucial in the pricing. 3. There are several patterns of distribution of bidding prices. Due to unreasonable 50%-50% split in the auction and the lottery, the IPO companies have incentive to secretly bid up the price in the auction side, intending to raise the price of the lottery side. This thesis finds the "bid concentration ratio" a good indicator revealing the intention of the IPO companies. 4. Evidence does not show that the large amount purchase of IPO stock by institutional investors and underwriters helps to stabilize the price of IPO stock. 5. Five variables are found to influence the short-term price performance of IPO stocks: the pricing formula, market condition, the exchange listed, the method of underwriting, the industry category listed. 6. The policy implication of this thesis is: To make the auction in IPO more efficient, the authority should remove the price cap in the lottery stage of the auction system; or even further removes the current auction-lottery combination in the auction system, leaving auction as pure auction.