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Systematic risk, the tradeoff of leverage and IPO first-day returns

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  • Dorsaf Ben Aissia

    (Higher Institute of Management of Tunis)

  • Narjess Skhiri Hellara

    (Higher Institute of Management of Tunis)

Abstract

In this paper, we investigate IPO first-day returns in French market. Our focus is to assess the relationship between equity risk, corporate leverage and IPO initial returns. Based on data of 254 French IPOs, traded on Euronext/Alternext markets over the period 2006 and 2016, we find that estimated beta and idiosyncratic volatility are strongly and negatively related to book and market net gearing ratios. We also find that the interaction terms between equity risk measures and corporate leverage ratios are inversely related to IPO first-day returns. In addition, we highlight that industry and macroeconomic environment variables are significant predictors of equity initial returns. Robustness check of our findings indicates less relevant results for corporate leverage when it is estimated as independent variable.

Suggested Citation

  • Dorsaf Ben Aissia & Narjess Skhiri Hellara, 2019. "Systematic risk, the tradeoff of leverage and IPO first-day returns," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 239-256, July.
    • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:1:d:10.1007_s11156-018-0748-z
    DOI: 10.1007/s11156-018-0748-z
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    More about this item

    Keywords

    IPO first-day returns; Equity risk; Corporate leverage; Interaction terms; Industry and macroeconomic environment variables;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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