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Do IPOs Affect the Prices of Other Stocks? Evidence from Emerging Markets

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  • Matías Braun
  • Borja Larrain

Abstract

We show that the introduction of a large asset permanently affects the prices of existing assets in a market. Using data from 254 initial public offerings (IPOs) in 22 emerging markets, we find that portfolios that covary highly with the IPO experience a decline in prices relative to other portfolios during the month of the issue. The effects are stronger when the IPO is issued in a market that is less integrated internationally and when the IPO is bigger. This evidence is consistent with the idea that shocks to asset supply have a significant effect on asset prices. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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  • Matías Braun & Borja Larrain, 2009. "Do IPOs Affect the Prices of Other Stocks? Evidence from Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1505-1544, April.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:4:p:1505-1544
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    Cited by:

    1. Astudillo, Alfonso & Braun, Matías & Castañeda, Pablo, 2011. "The going public decision and the structure of equity markets," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1451-1470.
    2. Campbell, Cynthia J. & Cowan, Arnold R. & Salotti, Valentina, 2010. "Multi-country event-study methods," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3078-3090, December.
    3. Liu, Guannan & Wang, Anqi & Wang, Kedi & Zhao, Qiuyun, 2024. "Shareholder bargaining power and labor income share: Evidence from a quasi-natural experiment in China," Finance Research Letters, Elsevier, vol. 59(C).
    4. Zhang, Yue, 2015. "The securitization of gold and its potential impact on gold stocks," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 309-326.
    5. Hong, Harrison & Kubik, Jeffrey D. & Stein, Jeremy C., 2008. "The only game in town: Stock-price consequences of local bias," Journal of Financial Economics, Elsevier, vol. 90(1), pages 20-37, October.
    6. Fang, Junxiong & Shi, Haina & Xu, Haoping, 2012. "The determinants and consequences of IPOs in a regulated economy: Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 131-150.
    7. Xiaoli Guo & Sicen Chen & Wei Yu & Chengyi Liu, 2022. "Product market competition and controlling shareholders' tunneling: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3820-3832, December.
    8. Frank Packer & Mark M. Spiegel, 2020. "Competitive Effects of IPOS: Evidence from Chinese Listing Suspensions," Working Paper Series 2020-30, Federal Reserve Bank of San Francisco.
    9. Ayyagari, Meghana & Doidge, Craig, 2010. "Does cross-listing facilitate changes in corporate ownership and control?," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 208-223, January.
    10. Baschieri, Giulia & Carosi, Andrea & Mengoli, Stefano, 2015. "Local IPOs, local delistings, and the firm location premium," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 67-83.
    11. Ronald W. Masulis & Peter K. Pham & Jason Zein, 2020. "Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control," Management Science, INFORMS, vol. 66(11), pages 5191-5215, November.
    12. Nguyen, Thai Vu Hong & Nguyen, Binh Thanh & Nguyen, Thanh Cong & Nguyen, Quang Quoc, 2019. "Bitcoin return: Impacts from the introduction of new altcoins," Research in International Business and Finance, Elsevier, vol. 48(C), pages 420-425.
    13. McGilvery, Andrew & Faff, Robert & Pathan, Shams, 2012. "Competitive valuation effects of Australian IPOs," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 74-83.
    14. Braun, Matías, 2014. "The structure of equity markets across countries: Scarcity and stock valuations," Finance Research Letters, Elsevier, vol. 11(4), pages 385-397.
    15. Jamal A. Al‐Khasawneh & Paul Dion & Naceur Essaddam & Tashfeen Hussain, 2023. "Is the cost of equity a mere function of leverage? The case of bond IPOs," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 58-78, January.
    16. Luis Alfonso Dau & Randall Morck & Bernard Yin Yeung, 2021. "Business groups and the study of international business: A Coasean synthesis and extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 161-211, March.
    17. Hanselaar, Rogier M. & Stulz, René M. & van Dijk, Mathijs A., 2019. "Do firms issue more equity when markets become more liquid?," Journal of Financial Economics, Elsevier, vol. 133(1), pages 64-82.
    18. Zhang, Jinjin & Chen, Huili & Zhang, Pengdong & Jiang, Min, 2022. "Product market competition and the value of corporate cash: An agency theory explanation," International Review of Financial Analysis, Elsevier, vol. 84(C).
    19. Kutsuna, Kenji & Smith, Janet Kiholm & Smith, Richard & Yamada, Kazuo, 2016. "Supply-chain spillover effects of IPOs," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 150-168.
    20. Frank Packer & Mark M. Spiegel, 2016. "China's IPO activity and equity market volatility," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    21. Li, Yuanpeng & Sun, Qian & Tian, Shu, 2018. "The impact of IPO approval on the price of existing stocks: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 109-127.
    22. Maquieira, Carlos P. & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2012. "Theory and practice of corporate finance: Evidence and distinctive features in Latin America," Emerging Markets Review, Elsevier, vol. 13(2), pages 118-148.
    23. Lin, Xiaowei & Li, Ao & Zhang, Pengdong & Chen, Wenchuan, 2023. "The disciplinary role of product market competition on cash holding," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 653-671.
    24. Li, Yi & Zhang, Wei, 2021. "Another game in town: Spillover effects of IPOs in China," Journal of Corporate Finance, Elsevier, vol. 67(C).
    25. Boucher, Carène & Kooli, Maher, 2021. "SEOs: Friendly or threatening game for rivals?," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 130-144.

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