On the Anticipation of IPO Underpricing: Evidence from Equity Carve-Outs

47 Pages Posted: 11 Dec 2000 Last revised: 14 May 2014

See all articles by Lawrence M. Benveniste

Lawrence M. Benveniste

University of Minnesota - Twin Cities - Carlson School of Management

Huijing Fu

Texas Christian University

Paul J. Seguin

University of Minnesota - Twin Cities - Carlson School of Management

Xiaoyun Yu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR)

Date Written: August 1, 2008

Abstract

We investigate IPO market efficiency using a sample of equity carve-outs offered during the period of 1985-2005. Unlike IPOs examined in previous studies where trading during the pre-IPO book-building period does not exist and trading on the IPO date is rationed, in equity carve-outs, investors can trade in the non-rationed market for shares of the parent, which holds a significant fraction of the subsidiary. We find that the subsidiary's initial day return is significantly related to its parent's return over the book-building period, but unrelated to its parent's contemporaneous return. Neither the pre-IPO price revision of the subsidiary nor the return to the parent on the initial trading day can be predicted. While the portion of the subsidiary's initial return unpredictable from information available during the book-building period is significantly related to its parent's contemporaneous return, the predictable component of the initial return is not. We interpret these results as evidence consistent with market efficiency.

Keywords: initial public offerings, underpricing, carve-outs, market efficiency

JEL Classification: G14, G30

Suggested Citation

Benveniste, Lawrence M. and Fu, Huijing and Seguin, Paul J. and Yu, Xiaoyun, On the Anticipation of IPO Underpricing: Evidence from Equity Carve-Outs (August 1, 2008). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=251672 or http://dx.doi.org/10.2139/ssrn.251672

Lawrence M. Benveniste

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
774 Management and Economics
Minneapolis, MN 55455
United States
612-624-4563 (Phone)
612-626-1335 (Fax)

Huijing Fu (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-7148 (Phone)
817-257-7227 (Fax)

Paul J. Seguin

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
(612) 626-7861 (Phone)

Xiaoyun Yu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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