Academic journal article Atlantic Economic Journal

Pricing Information, Partial Auction, and Post-Listing Performance: Evidence from IPOs in Taiwan (1989-2003)

Academic journal article Atlantic Economic Journal

Pricing Information, Partial Auction, and Post-Listing Performance: Evidence from IPOs in Taiwan (1989-2003)

Article excerpt

Pettway and Taneko (Pacific-Basin Finance Journal, 1996, 254.) demonstrated that the introduction of the auction into the Japanese IPO market has indeed brought the listing price closer to its intrinsic value. They documented that it is possible for the daily close price to fall below the listing price in the aftermarket.

On March 8, 1995, the authorities in Taiwan ushered in the partial auction mechanism in so that the listing firms were allowed to choose between two mutually exclusive underwriting systems. One was the traditional public subscription system, i.e., the shares are allocated on a pro rata basis with reference to the lot-drawing rate. Second, was the partial auction system, i.e., 50% of the offered shares are auctioned in the market to determine the listing price. In viewing the fact that the two permissible share allocation mechanisms are close substitutes, it is expected that the listing price will be brought closer to the intrinsic value under both mechanisms. As a consequence, it is postulated that the percentage of falling below the listing price will be similar to each other under the parallel underwriting mechanisms in the post-partial-auction-period (a two-tailed test). In contrast, it is postulated that the percentage of IPOs falling below the listing price will substantially increase in the post-partial-auction period when compared with the pre-partial-auction period (a one-tailed test). …

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