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Essays on IPO underpricing: an economic approach

Zheng, C. (2018) Essays on IPO underpricing: an economic approach. PhD thesis, University of Reading

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Regardless of the huge body of literature on the short-run performance of initial public offerings (IPOs), the anomaly remains unsolved and there are still less explored areas, mainly due to a lack of data availability and methodology restrictions. This thesis aims to provide a better understanding of IPO valuation and initial returns with an economic approach, which is new to the focus of current literature on firm- and issuing-characteristics. Specifically, this thesis introduces three new macroeconomic determinants in an IPO valuation, including the country-level financial integration, regional economic openness and geographic business/investment location of real assets, by focusing on the cross-country and real estate IPOs. Due to the already mentioned restrictions on data and methodology, the analysis of this thesis is carried out on three studies, each with a unique and different dataset. The results show that a country’s financial integration reduces IPO initial returns, along with the country-level institutional settings. Alongside this direct effect, the results also suggest a moderation effect where financial integration weakens the impact of country institutions on IPO underpricing. Furthermore, in the second study, urban economic openness at a regional (or city) level within a country is found to reduce IPO initial returns. We use the laboratory of real estate IPOs in China, where we observe high underpricing and cross-sectional variation in openness between regions. As this impact is transmitted through the geographic location of a company’s underlying real assets, the final study shows how this geographic factor matters for U.S. Real Estate Investment Trust (REIT) IPOs. The findings reveal a negative relationship between the geographic diversification of the underlying properties and IPO initial returns. Overall, this thesis highlights the importance of the macroeconomic conditions surrounding the issuing company to its IPO valuation

Item Type:Thesis (PhD)
Thesis Supervisor:Marcato, G. and Milcheva, S.
Thesis/Report Department:Henley Business School
Identification Number/DOI:
Divisions:Henley Business School > Real Estate and Planning
ID Code:78876
Date on Title Page:2017


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