Systematic risk, the tradeoff of leverage and IPO first-day returns

Dorsaf Ben Aissia () and Narjess Skhiri Hellara ()
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Dorsaf Ben Aissia: Higher Institute of Management of Tunis
Narjess Skhiri Hellara: Higher Institute of Management of Tunis

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 1, No 8, 239-256

Abstract: Abstract In this paper, we investigate IPO first-day returns in French market. Our focus is to assess the relationship between equity risk, corporate leverage and IPO initial returns. Based on data of 254 French IPOs, traded on Euronext/Alternext markets over the period 2006 and 2016, we find that estimated beta and idiosyncratic volatility are strongly and negatively related to book and market net gearing ratios. We also find that the interaction terms between equity risk measures and corporate leverage ratios are inversely related to IPO first-day returns. In addition, we highlight that industry and macroeconomic environment variables are significant predictors of equity initial returns. Robustness check of our findings indicates less relevant results for corporate leverage when it is estimated as independent variable.

Keywords: IPO first-day returns; Equity risk; Corporate leverage; Interaction terms; Industry and macroeconomic environment variables (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11156-018-0748-z

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