Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers

Kojo Menyah, Krishna Paudyal, Charles G. Inyangete

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62%, whereas the average raw return available to subscribers is up to 41%. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70% of the variation in issuer underpricing and 64% of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.

LanguageEnglish
Pages473-495
Number of pages23
JournalJournal of Economics and Business
Volume47
Issue number5
DOIs
Publication statusPublished - 31 Dec 1995

Fingerprint

Underpricing
Long-term performance
Privatization
Equity markets
Long period
Factors
Regression analysis
Market volatility
Investors
Private sector
Long-run performance
Underwriters
Empirical model
Proportion
Market value
Evaluation

Keywords

  • privatization initial public offers
  • market volatility
  • underpricing

Cite this

@article{9e687ae558b94d638fc98cc42656b5db,
title = "Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers",
abstract = "This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62{\%}, whereas the average raw return available to subscribers is up to 41{\%}. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70{\%} of the variation in issuer underpricing and 64{\%} of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.",
keywords = "privatization initial public offers, market volatility, underpricing",
author = "Kojo Menyah and Krishna Paudyal and Inyangete, {Charles G.}",
year = "1995",
month = "12",
day = "31",
doi = "10.1016/0148-6195(95)00039-9",
language = "English",
volume = "47",
pages = "473--495",
journal = "Journal of Economics and Business",
issn = "0148-6195",
number = "5",

}

Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers. / Menyah, Kojo; Paudyal, Krishna; Inyangete, Charles G.

In: Journal of Economics and Business, Vol. 47, No. 5, 31.12.1995, p. 473-495.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers

AU - Menyah, Kojo

AU - Paudyal, Krishna

AU - Inyangete, Charles G.

PY - 1995/12/31

Y1 - 1995/12/31

N2 - This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62%, whereas the average raw return available to subscribers is up to 41%. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70% of the variation in issuer underpricing and 64% of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.

AB - This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62%, whereas the average raw return available to subscribers is up to 41%. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70% of the variation in issuer underpricing and 64% of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.

KW - privatization initial public offers

KW - market volatility

KW - underpricing

UR - http://www.scopus.com/inward/record.url?scp=0000506633&partnerID=8YFLogxK

U2 - 10.1016/0148-6195(95)00039-9

DO - 10.1016/0148-6195(95)00039-9

M3 - Article

VL - 47

SP - 473

EP - 495

JO - Journal of Economics and Business

T2 - Journal of Economics and Business

JF - Journal of Economics and Business

SN - 0148-6195

IS - 5

ER -