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Does the Market Incorporate Previous IPO Withdrawals When Pricing Second‐Time IPOs?
Author(s) -
Lian Qin,
Wang Qiming
Publication year - 2009
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2009.01039.x
Subject(s) - initial public offering , underwriting , issuer , business , investment banking , stock (firearms) , monetary economics , economics , finance , mechanical engineering , engineering
This paper examines the initial public offering (IPO) valuations of issuers that return to the IPO market successfully after withdrawing their first IPO attempt. We find that these second‐time IPOs sell at a significant discount relative to similar contemporaneous IPOs that succeed in their first attempt. We also demonstrate that switching underwriters on the second IPO attempt reduces, but does not eliminate, the discount for second‐time IPOs. When compared to their matched first‐time IPOs, second‐time IPOs have similar price revisions and post‐IPO long‐run stock and operating performances. Overall, these results suggest that the negative information conveyed by the withdrawal event is incorporated into the lower offer valuations for second‐time IPOs. Switching investment banks can mitigate, but not eliminate, the perceived higher risk of the second‐time offerings.