Factors infuencing the performance of IPOs

The major influencing IPO factors in accordance with our research are:

1.Firm Size (SIZE):

Firm Size is one of the most major influencing factors. Many small firms want to go public to raise capital to finance their new investments and reduce their high level of debt, especially in young shipping companies, where the debt ratio is over 70%. 

Although, a move like that, accordance with bad investment results can put them in more difficult situation, which it is obvious that is going to be reflected in the stock market price. Ritter (1991) reports, firms with highest mean initial returns have the poorest long-run returns, which is consistent with the overreaction hypothesis.

2.History in Operation (AGE):

IPO’s Age, measured by the difference between the years a firm goes public and the year firm operates private. Kooli and Suret (2004), report’s that small firms with little or no operating history will have a great deal of uncertainty in the long term.

3.Underwriter Reputation (UND):

Underwriters reputation is another critical factor influents the performance of an IPO. It is clear that, when an IPO is managed by a reputable investment bank-underwriter (Goldman Sachs, JP Morgan etc) the firm has better investment and perspective position.

4.Market of listing (MRK):

As we know, IPOs are classified among three markets, the Main, Parallel and New.  It seems that IPOs listing in Main-Primary markets have a better long-run performance which is lined up with Ritter (1991). Thomadakis (2009) report that IPOs traded in the primary market yield higher returns in the long run.

5.Given Ownership (GO):

Gounopoulos & Merikas (2009) report that the percentage of Given Ownership to public may signal the quality of IPOs to investors.  We figure out that small percentages (fewer than 40% and especially less than 30%) can reflect better long-run returns.

6.Market condition (H/C):

The period in which any IPO and by extension any shipping IPO decide to go public can be characterized by specific market conditions. These conditions can influent the opinion of an investor who wants to be an IPO share. Those market conditions are, the “HOT” and “COLD” market period. It is clear, that when an IPO goes public on a HOT period, investors expected larger returns in the first few trading days, in spite of the COLD market condition. That kind of market characteristics can change the short-run performance of IPOs according to the market condition.

7.Exchange of Listing (EXC):

In our study, we analyze the USA listed IPOs. The United States of America is the capital of the global economy and has more stock exchanges than any other country in the world. As a result from the above firms go public in US and especially in main stock exchanges (NYSE, NASQAD etc) will face better returns in long term, because of the security they give to investors.

8.Foreign IPOs, Country of Headquarters (COUN):

Country of headquarters is another factor that used in our study. Companies that go public in the Unites States of America from other developed and well established markets are expected to perform with stability in the long run. We report that firms which have their headquarters in new developing countries or traditional developing seems to attract more investors and investing funds.

That’s the factors can influence the performance of an IPO in the sort-run and long-run as well. From the above evidence we can assume that a large (SIZE) firm is associated with better returns over a 6-months holding period. Thus, listing in the NYSE- New York Stock Exchange instead of AMEX, NASQAD or OTC and having the headquarters in any country outside the United States are positions for better long run performance. As for the coefficient on an underwriter’s reputation-UND, indicates that hiring a reputable bank as an underwriter proves to be an economic benefit in the long run.

Also the timing of listing is especially important. When an firm go public in a HOT market period, we can observe, in most cases, short-run  over performance  (Twitter 72% - as an IPO) and vise versa for a COLD period.

CG