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Does the Market Incorporate Previous IPO Withdrawals When Pricing Second‐Time IPOs?

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  • Qin Lian
  • Qiming Wang

Abstract

This paper examines the initial public offering (IPO) valuations of issuers that return to the IPO market successfully after withdrawing their first IPO attempt. We find that these second‐time IPOs sell at a significant discount relative to similar contemporaneous IPOs that succeed in their first attempt. We also demonstrate that switching underwriters on the second IPO attempt reduces, but does not eliminate, the discount for second‐time IPOs. When compared to their matched first‐time IPOs, second‐time IPOs have similar price revisions and post‐IPO long‐run stock and operating performances. Overall, these results suggest that the negative information conveyed by the withdrawal event is incorporated into the lower offer valuations for second‐time IPOs. Switching investment banks can mitigate, but not eliminate, the perceived higher risk of the second‐time offerings.

Suggested Citation

  • Qin Lian & Qiming Wang, 2009. "Does the Market Incorporate Previous IPO Withdrawals When Pricing Second‐Time IPOs?," Financial Management, Financial Management Association International, vol. 38(2), pages 357-380, June.
    • Handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:357-380
    DOI: 10.1111/j.1755-053X.2009.01039.x
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    Cited by:

    1. Lian, Qin & Wang, Qiming, 2012. "Acquisition valuations of withdrawn IPOs: When IPO plans turn into mergers," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1424-1436.
    2. Helbing, Pia, 2019. "A review on IPO withdrawal," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 200-208.
    3. Chen, Gaole & Sutton, Ninon & Qi, Jianping, 2017. "From setback to comeback: Motivations for withdrawn IPO firms to return," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 259-264.
    4. Chen, Yangyang & Goyal, Abhinav & Veeraraghavan, Madhu & Zolotoy, Leon, 2020. "Terrorist attacks, investor sentiment, and the pricing of initial public offerings," Journal of Corporate Finance, Elsevier, vol. 65(C).
    5. Boeh, Kevin K. & Dunbar, Craig G., 2021. "Raising capital after IPO withdrawal," Journal of Corporate Finance, Elsevier, vol. 69(C).
    6. Dambra, Michael & Field, Laura Casares & Gustafson, Matthew T., 2015. "The JOBS Act and IPO volume: Evidence that disclosure costs affect the IPO decision," Journal of Financial Economics, Elsevier, vol. 116(1), pages 121-143.
    7. Reiff, Annika & Tykvová, Tereza, 2021. "IPO withdrawals: Are corporate governance and VC characteristics the guiding light in the rough sea of volatile markets?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    8. Hao, (Grace) Qing, 2011. "Securities litigation, withdrawal risk and initial public offerings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 438-456, June.
    9. Fan, Pengda & Uchida, Konari, 2019. "Credit crunch and timing of initial public offerings," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 22-39.

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