The Study on the Abnormal Return of the IPO and TDR Pricing Process in Taiwan
Date Issued
2011
Date
2011
Author(s)
Chang, Huang-I
Abstract
Existing research on the share price performance of the initial public offering (IPO) companies has mainly focused on developed markets. Limited literature can be found for studies focusing on emerging markets. The proliferation of multinational enterprises going for IPOs or TDR offerings (also known as “second-IPO”) in Taiwan for fundraising has also been observed in recent years. This research aims to examine the short-term share price performance of post-IPO companies by analyzing a sample of 84 IPOs in the Taiwan Stock Exchange (TWSE) since the launch of the 2005 regulation relaxing the price limits within the first five days after the IPO, using Market Adjusted Return Method and Market Model Return Method. Taking into account the characteristics of the (TWSE) that the Hi-Tech sector accounts for a significant proportion of both the total stock exchange daily trading volume and the total number of listed companies, this research further analyzes the 66 IPOs related to the Hi-Tech sector (Hi-Tech IPOs) in depth. Furthermore, since 2009, regulation has gradually loosened with regard to foreign capital; this research also examines a sample of 30 second-IPOs in Taiwan (TDR) and investigates their short term abnormal returns.
Looking at the sample analyzed, as for the IPO, the research deploys 84 equities which went for IPO between 2005 and 2011 and of which 64 are from the Hi-Tech sector; and as for the TDR, the researcher uses “Want Want” (issued in April 2009) and “SIM Technology” (issued in April 2011). Using Market Adjusted Return Method and Market Model Return Method respectively to analyze whether there exists any short term abnormal returns Day 1 to Day 5 after IPO. The results show that with the whole IPO sample, the Hi-Tech IPO sample and the TDR, no short term abnormal returns can be found, confirming the fairness and efficiency of the IPO pricing in Taiwan. This research concludes that the launch of the 2005 regulation relaxing the price limits the first five days after the IPO has facilitated the functioning and efficiency of the capital market in Taiwan.
Subjects
Abnormal Return
IPO
TDR
Market-adjusted return method
Market model method
Type
thesis
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