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IPO characteristics of index firms

IPO characteristics of index firms Purpose – The purpose of this paper is to investigate the initial public offerings (IPOs) of the firms that are eventually included in one of the S&P 400, the S&P 500, or the S&P 600 Indices. Do these firms have very different IPO features than the rest of the IPOs? Design/methodology/approach – The control sample is formed of IPOs that are not included in the corresponding index, and the IPOs that end up in each S&P index are compared to this control sample. Logistic regressions are utilized to estimate the odds of inclusion into one of these indices. Findings – The author finds that the IPO features, such as underpricing, offer price, underwriter's reputation, venture capital presence, and so on, are found to be substantially different for the index samples. The index firms are found to be “superstars” that deliver extremely high long‐run returns between their IPO date and their index inclusion date. The above results suggest that the quality of index firms has a persistent component to it that can be detected even during the IPO process. After estimating the determinants of the index inclusion, the author discovers that factors implying lower asymmetric information about firm's business (such as, the firm being a spinoff, or being certified by a venture capitalist or a prestigious underwriter, etc.) increase its odds of inclusion. Originality/value – The paper proposes and tests two new hypotheses related to inclusion into an S&P index. Discoveries made in this paper can help someone recognize which IPOs could become “superstars” that end up in an S&P index. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

IPO characteristics of index firms

Managerial Finance , Volume 38 (12): 26 – Oct 12, 2012

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References (82)

Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351211271265
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate the initial public offerings (IPOs) of the firms that are eventually included in one of the S&P 400, the S&P 500, or the S&P 600 Indices. Do these firms have very different IPO features than the rest of the IPOs? Design/methodology/approach – The control sample is formed of IPOs that are not included in the corresponding index, and the IPOs that end up in each S&P index are compared to this control sample. Logistic regressions are utilized to estimate the odds of inclusion into one of these indices. Findings – The author finds that the IPO features, such as underpricing, offer price, underwriter's reputation, venture capital presence, and so on, are found to be substantially different for the index samples. The index firms are found to be “superstars” that deliver extremely high long‐run returns between their IPO date and their index inclusion date. The above results suggest that the quality of index firms has a persistent component to it that can be detected even during the IPO process. After estimating the determinants of the index inclusion, the author discovers that factors implying lower asymmetric information about firm's business (such as, the firm being a spinoff, or being certified by a venture capitalist or a prestigious underwriter, etc.) increase its odds of inclusion. Originality/value – The paper proposes and tests two new hypotheses related to inclusion into an S&P index. Discoveries made in this paper can help someone recognize which IPOs could become “superstars” that end up in an S&P index.

Journal

Managerial FinanceEmerald Publishing

Published: Oct 12, 2012

Keywords: Initial public offerings; S&P 400; S&P 500; S&P 600; Equity capital; Stocks

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