| Summary: | 博士 === 逢甲大學 === 商學研究所 === 98 === Many studies have documented evidence that initial public offerings (IPOs) of common stocks usually produce high abnormal returns during the initial return period, and then underperform the market during the two to five year post-issue period. Consistent with the stock price evidence, numerous studies found that IPO firms suffer long-term operating deterioration after the initial public offerings. This study investigates the short-term and long-term performance of IPO firms in Taiwan. Since the Taiwanese stock market has several unique characteristics, one of which is the establishment of the pre-IPO market, the Emerging Stock Market (ESM), which started in 2002, this study will provide more than just another piece of empirical evidence about IPO underperformance
The establishment of the Emerging Stock Market (ESM) can provide investors a safe and informational efficient IPO market and can offer issuers the option of attending ESM prior to initial public offerings (IPOs). It is believed that the establishment of ESM can lower IPO underpricing level for insurers (initial return for investors); hence, the decreased issuing costs due to the price discovery function of the ESM during the pre-listing period.
Using a sample of 96 the Taiwan Stock Exchange (TWSE)-listed and 369 the Gre Tai Securities Market (GTSM)-listed IPOs during the 1999 to 2004, we separated our sample firms into ESM firms and Direct-Listing firms, based on whether or not firms had attended ESM before IPOs. We compared ESM firms and Direct-Listing firms with respect to the short-term initial returns and the long-term holding returns for up to three years after the offering. We found that within the TWSE, the initial returns of ESM firms are significantly lower than those of the Direct-Listing firms. However, the differences of the initial returns between these two subsamples are not statistically significant within the GTSM. Initial returns are taken as the indirect cost of issuing equity; thus, the two-stage listing procedure appears cheaper for issuers in the TWSE.
As to the post-issue abnormal returns of IPO shares within the TWSE, the differences of the three-year buy-and-hold returns between ESM and Direct-Listing subsamples are statistically significant. However, within the GTSM, the differences between the two are insignificant. This suggests that the ESM shares have a worse post-issue performance than the Direct-Listing shares in the TWSE.
Consistent with the market performance of IPO shares in Taiwan, the analytical results indicate that IPO firms suffer long-term post-issue deterioration in operating performance, and the difference in deterioration between ESM and Direct-Listing firms is more significant for the TWSE than for the GTSM. Since this study is concerned with identifying the explanatory factors for operating underperformance, it performs multiple regressions to look for factors that may explain post-issue deterioration in operating performance. We conclude that this phenomenon can be explained by the overly-optimistic market expectations and the window-of-opportunity hypotheses; however, our evidence does not support the agency-problem hypothesis.
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