Post-IPO performance and its association with subscription cascades and issuers’ strategic-political importance

Paul McGuinness ()

Review of Quantitative Finance and Accounting, 2016, vol. 46, issue 2, 333 pages

Abstract: This study focuses on the strategic-political importance of firms undertaking IPO in China’s international Hong Kong market. This market setting is of particular interest given the unique mix of state-backed and privately-owned issuers drawn to it. I find that an issuer’s strategic-political importance is strongly and positively related to post-IPO returns. An issuer’s strategic-political importance is also negatively correlated with the variance of changes in its post-listing earnings and revenue. Overall, the present study suggests that state support correlates with enhanced post-IPO stock returns and more stable sales turnover and earnings. However, results show that state ownership does not necessarily translate into increased post-IPO revenue and earnings growth. The paper’s second major contribution relates to the identification of pronounced subscription “cascades” (Welch in J Financ 67(2):695–732, 1992 ) and how these correlate with post-IPO returns. Results suggest that insipid (overly exuberant) subscription demand presages strong (weak) post-listing returns. Consistent with “cascade” arguments (Welch 1992 ), return reversals occur without commensurate revenue or earnings change. Finally, and in terms of valuation uncertainty (Miller in J Financ 32(4):1151–1168, 1977 ), findings point to an inverse association between post-IPO stock returns and the magnitude of an issue’s prospectus-disclosed offer price range. Copyright Springer Science+Business Media New York 2016

Keywords: IPOs; Hong Kong; Strategic-political importance; Buy-and-hold returns; Turnover; Net profit; Investor ‘cascades’; F00; G00-01; G10; G15; G18; G38 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11156-014-0470-4

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