A study on the relationship between timing of issuances and abnormal returns of IPO firms

Authors: Kuei-Yen Wu

Journal: Chiao Da Management Review. Jun. 2006, 26(1): 39-67.

Keywords: IPO; Timing of issuance; Abnormal returnsy

Abstract:
This study investigates the relationship between timing of issuance and abnormal return for IPO firms in Taiwan. The empirical results suggest that there is a positive relationship between the initial return and the change in stock market indices or leading indicators. In other words, periods in which the stock market indices or leading indicators performed strongly were followed by periods with high initial IPO returns. The hot market hypothesis is the prevailing explanation for this phenomenon. Besides, the abnormal return of the electronic industry is sensitive to the market conditions. The hot market theory provides us with some insight into why initial returns vary over time. However, the short-term abnormal return after IPO is not related to the initial return. The fad hypothesis is rejected. In addition, there is no relation between the long-run abnormal return and the initial IPO return. The negative relation between the timing of issuance and the long-run abnormal return suggests that most IPOs take advantage of the window of opportunity successfully.