The timing of initial public offerings – non-numerical model based on qualitative trends
Abstract
The objective of this study is to develop a qualitative model supporting chief financial officers (CFOs) while considering the timing of initial public offerings (IPOs) under conditions of underdeveloped capital markets, where decision making is often made under information shortage. A lack of adequate statistical data in connection with turbulently changing environment suggests that additional research is needed to develop new IPO timing models based not only on statistical analyses. We used a qualitative research approach based on trends, which are increasing, constant or decreasing. Firstly, we identified key variables influencing IPO timing, which have sufficient support in the relevant IPO academic literature, e.g. GDP growth rates, level of compliance, stock market returns, etc. Next, a qualitative model working with 9 variables was developed. The result is represented by 19 scenarios and their qualitative solutions. The transitional graph represents all possible transitions among the 19 scenarios. The main message of the findings presented is what scenarios can occur and what actions might be implemented by CFOs in order to increase the chances of IPO success. We believe that our findings provide valuable implications for local issuers, investment bankers, stock exchanges and macroeconomic policy makers.
Keyword : initial public offering, IPO, timing, determinants, macroeconomics, microeconomics, heuristics, qualitative, scenario, transition
How to Cite
Meluzín, T., Zinecker, M., Balcerzak, A. P., Doubravský, K., Pietrzak, M. B., & Dohnal, M. (2018). The timing of initial public offerings – non-numerical model based on qualitative trends. Journal of Business Economics and Management, 19(1), 63-79. https://doi.org/10.3846/jbem.2018.1539
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Baker, M., & Wurgler, J. (2000). The equity share in new issues and aggregate stock returns, Journal of Finance 55(5), 2219-2257. https://doi.org/10.1111/0022-1082.00285
Balcerzak, A. P., & Pietrzak, M. B. (2016). Quality of institutions for knowledge-based economy within new institutional economics framework. Multiple criteria decision analysis for European countries in the years 2000–2013, Economics & Sociology, 9(4), 66-81. https://doi.org/10.14254/2071-789X.2016/9-4/4
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Black, B. S., & Gilson, R. J. (1998). Venture capital and the structure of capital markets: banks versus stock markets, Journal of Financial Economics, 47(3), 243-277. https://doi.org/10.1016/S0304-405X(97)00045-7
Brau, J. C., & Fawcett, S. E. (2006). Initial public offerings: an analysis of theory and practise. Journal of Finance 61(1), 399-436. https://doi.org/10.1111/j.1540-6261.2006.00840.x
Breinlinger, L., & Glogova, E. (2002). Determinants of initial public offerings: a European time-series cross-section analysis. Working Paper. Financial Stability Report. Wien: Oesterreichische Nationalbank.
Brzeszczynski, J. (2014). IPOs in emerging markets. QFinance. Retrieved from http://www.qfinance.com/financing-best-practice/ipos-in-emerging-markets?full
Burgstaller, J. (2005). When and why do Austrian companies issue shares? Working Paper No. 0503. Linz: Johannes Kepler University.
Chemmanur, T. J., & Fulghiery, A. (1999). Theory of the going-public decision. Review of Financial Studies, 12(2), 249-279. https://doi.org/10.1093/rfs/12.2.249
Chen, Y. S., & Cheng, C. H. (2012). A soft-computing based rough sets classifier for classifying IPO returns in the financial markets. Applied Soft Computing, 12(1), 462-475. https://doi.org/10.1016/j.asoc.2011.08.023
Choe, H., Masulis, R. W., & Nanda, V. (1993). Common stock offerings across the business cycle: theory and evidence. Journal of Empirical Finance, 1(1), 3-31. https://doi.org/10.1016/0927-5398(93)90003-A
Fałdziński, M., Balcerzak, A. P., Meluzín, T., Pietrzak, M. B., & Zinecker, M. (2016, September). Cointegration of interdependencies among capital markets of chosen Visegrad countries and Germany.
In A. Kocourek, M. Vavrousek (Eds.), 34th International Conference Mathematical Methods in Economics (pp. 189-194). Liberec: Technical University of Liberec.
FESE – Federation of European Securities Exchanges. (2015). Historical Data. Retrieved from http://www.fese.eu/statistics-market-research/historical-data
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics. Boston: McGraw-Hill.
Haefke, C., & Helmenstein, C. (1996). Forecasting Austrian IPOs: an application of linear and neural network error-correction models. Journal of Forecasting, 15(3), 237-251. https://doi.org/10.1002/(SICI)1099-131X(199604)15:3<237::AID-FOR621>3.0.CO;2-5
Hajek, P., Olej, V., & Myskova, R. (2014). Forecasting corporate financial performance using sentiment in annual reports for stakeholders’ decision-making. Technological and Economic Development of Economy, 20(4), 721-738. https://doi.org/10.3846/20294913.2014.979456
Ibbotson, R. G., & Jaffe, J. J. (1975). ‘Hot issue’ markets. Journal of Finance, 30(4), 1027-1042.
Jovanovic, B., & Rousseau, P. L. (2004). Interest rates and initial public offerings. National Bureau of Economic Research. Working Paper. Cambridge, MA. https://doi.org/10.3386/w10298
Kubiszewska, K. (2017). Banking concentration in the Baltic and Western Balkan states – selected issues. Oeconomia Copernicana, 8(1), 65-82. https://doi.org/10.24136/oc.v8i1.5
La Porta, R., Lopez de Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131-1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
Ljungqvist, A. P. (1995). When do firms go public? Poisson evidence from Germany. Working Paper. Oxford: University of Oxford.
Loeve, M. (1977). Probability Theory I. New York: Springer Science & Business Media.
Loughran, T., Ritter, J. R., & Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 2(2), 165–200. https://doi.org/10.1016/0927-538X(94)90016-7
Lowry, M. (2003). Why does IPO volume fluctuate so much?. Journal of Financial Economics, 67, 3-40. https://doi.org/10.1016/S0304-405X(02)00230-1
Maksimovic, V., & Pichler, P. (2001). Technological innovation and initial public offerings. Review of Financial Studies, 14, 459-494. https://doi.org/10.1093/rfs/14.2.459
Meluzín, T., & Zinecker, M. (2016). Trends in IPOs: the evidence from CEE capital markets. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(2), 327–341. https://doi.org/10.12775/EQUIL.2016.015
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 53(3), 433-43.
Modigliani, F., & Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 48, 261-297.
Myskova, R. (2009, September). Satisfaction of financial managers with accounting information system. In 3rd International Conference on Management, Marketing and Finances, 2009, WSEAS, Houston, USA.
Pagano, M., Panetta, F., & Zingales, L. (1998). Why do companies go public: an empirical analysis. Journal of Finance, 53, 27-64. https://doi.org/10.1111/0022-1082.25448
Peterle, P., & Berk, A. (2016). IPO cycles in Central and Eastern Europe: what factors drive these cycles? Czech Journal of Economics and Finance, 66(2), 113-139.
Pietrzak, M. B., Fałdziński, M., Balcerzak, A. P., Meluzín, T., & Zinecker, M. (2017). Short-term shocks and long-term relationships of interdependencies among Central European capital markets. Economics & Sociology, 10(1), 61-77. https://doi.org/10.14254/2071-789X.2017/10-1/5
Pohulak-Żołędowska, E. (2016). Innovation in contemporary economies. Oeconomia Copernicana, 7(3), 451-466. https://doi.org/10.12775/OeC.2016.026
PWC, PriceWaterhouseCoopers UK. (2017). IPO Watch Europe. Retrieved form https://www.pwc.co.uk/services/audit-assurance/capital-markets-accounting-advisory-and-structuring/insights/ipowatch-europe-all-editions.html
Rees, W. P. (1997). The arrival rate of initial public offers in the UK. European Financial Management, 3(1), 45-62. https://doi.org/10.1111/1468-036X.00030
Ritter, J. R. (1984). The ‘Hot Issue’ market of 1980. Journal of Business, 57(2), 215-240. https://doi.org/10.1086/296260
Ritter, J. R. (2011). Equilibrium in the IPO market. Financial Economics, 3, 347–374. https://doi.org/10.2139/ssrn.1822542
Ritter, J. R., & Welch, I. (2002). A review of IPO activity, pricing, and allocations. Journal of Finance, 57(4), 1795-1828. https://doi.org/10.1111/1540-6261.00478
Ross, S. M. (2017). Introductory statistics. Academic Press, Elsevier. https://doi.org/10.1016/B978-0-12-804317-2.00031-X
Rydqvist, K., & Högholm, K. (1995). Going public in the 1980s: evidence from Sweden. European Financial Management, 1(3), 287-315. https://doi.org/10.1111/j.1468-036X.1995.tb00021.x
Scott, J. H. (1976). A theory of optimal capital structure. Bell Journal of Economics, 7(1), 33-54. https://doi.org/10.2307/3003189
Theodoridis, S., & Koutroumbas, K. (2008). Pattern Recognition. Academic Press.
Żelazny, R., & Pietrucha, J. (2017). Measuring innovation and institution: the creative economy index. Equilibrium. Quarterly Journal of Economics and Economic Policy, 12(1), 43-62. https://doi.org/10.24136/eq.v12i1.3
Aussenegg, W., & Jelic, R. (2007). The operating performance of newly privatised firms in Central European transition cconomies. European Financial Management, 13(5), 853-879. https://doi.org/10.1111/j.1468-036X.2007.00400.x
Baker, M., & Wurgler, J. (2000). The equity share in new issues and aggregate stock returns, Journal of Finance 55(5), 2219-2257. https://doi.org/10.1111/0022-1082.00285
Balcerzak, A. P., & Pietrzak, M. B. (2016). Quality of institutions for knowledge-based economy within new institutional economics framework. Multiple criteria decision analysis for European countries in the years 2000–2013, Economics & Sociology, 9(4), 66-81. https://doi.org/10.14254/2071-789X.2016/9-4/4
Bancel, F., & Mittoo, U. R. (2009). Why do European firms go public? European Financial Management, 15(4), 844-884. https://doi.org/10.1111/j.1468-036X.2009.00501.x
Black, B. S., & Gilson, R. J. (1998). Venture capital and the structure of capital markets: banks versus stock markets, Journal of Financial Economics, 47(3), 243-277. https://doi.org/10.1016/S0304-405X(97)00045-7
Brau, J. C., & Fawcett, S. E. (2006). Initial public offerings: an analysis of theory and practise. Journal of Finance 61(1), 399-436. https://doi.org/10.1111/j.1540-6261.2006.00840.x
Breinlinger, L., & Glogova, E. (2002). Determinants of initial public offerings: a European time-series cross-section analysis. Working Paper. Financial Stability Report. Wien: Oesterreichische Nationalbank.
Brzeszczynski, J. (2014). IPOs in emerging markets. QFinance. Retrieved from http://www.qfinance.com/financing-best-practice/ipos-in-emerging-markets?full
Burgstaller, J. (2005). When and why do Austrian companies issue shares? Working Paper No. 0503. Linz: Johannes Kepler University.
Chemmanur, T. J., & Fulghiery, A. (1999). Theory of the going-public decision. Review of Financial Studies, 12(2), 249-279. https://doi.org/10.1093/rfs/12.2.249
Chen, Y. S., & Cheng, C. H. (2012). A soft-computing based rough sets classifier for classifying IPO returns in the financial markets. Applied Soft Computing, 12(1), 462-475. https://doi.org/10.1016/j.asoc.2011.08.023
Choe, H., Masulis, R. W., & Nanda, V. (1993). Common stock offerings across the business cycle: theory and evidence. Journal of Empirical Finance, 1(1), 3-31. https://doi.org/10.1016/0927-5398(93)90003-A
Fałdziński, M., Balcerzak, A. P., Meluzín, T., Pietrzak, M. B., & Zinecker, M. (2016, September). Cointegration of interdependencies among capital markets of chosen Visegrad countries and Germany.
In A. Kocourek, M. Vavrousek (Eds.), 34th International Conference Mathematical Methods in Economics (pp. 189-194). Liberec: Technical University of Liberec.
FESE – Federation of European Securities Exchanges. (2015). Historical Data. Retrieved from http://www.fese.eu/statistics-market-research/historical-data
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics. Boston: McGraw-Hill.
Haefke, C., & Helmenstein, C. (1996). Forecasting Austrian IPOs: an application of linear and neural network error-correction models. Journal of Forecasting, 15(3), 237-251. https://doi.org/10.1002/(SICI)1099-131X(199604)15:3<237::AID-FOR621>3.0.CO;2-5
Hajek, P., Olej, V., & Myskova, R. (2014). Forecasting corporate financial performance using sentiment in annual reports for stakeholders’ decision-making. Technological and Economic Development of Economy, 20(4), 721-738. https://doi.org/10.3846/20294913.2014.979456
Ibbotson, R. G., & Jaffe, J. J. (1975). ‘Hot issue’ markets. Journal of Finance, 30(4), 1027-1042.
Jovanovic, B., & Rousseau, P. L. (2004). Interest rates and initial public offerings. National Bureau of Economic Research. Working Paper. Cambridge, MA. https://doi.org/10.3386/w10298
Kubiszewska, K. (2017). Banking concentration in the Baltic and Western Balkan states – selected issues. Oeconomia Copernicana, 8(1), 65-82. https://doi.org/10.24136/oc.v8i1.5
La Porta, R., Lopez de Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131-1150. https://doi.org/10.1111/j.1540-6261.1997.tb02727.x
Ljungqvist, A. P. (1995). When do firms go public? Poisson evidence from Germany. Working Paper. Oxford: University of Oxford.
Loeve, M. (1977). Probability Theory I. New York: Springer Science & Business Media.
Loughran, T., Ritter, J. R., & Rydqvist, K. (1994). Initial public offerings: International insights. Pacific-Basin Finance Journal, 2(2), 165–200. https://doi.org/10.1016/0927-538X(94)90016-7
Lowry, M. (2003). Why does IPO volume fluctuate so much?. Journal of Financial Economics, 67, 3-40. https://doi.org/10.1016/S0304-405X(02)00230-1
Maksimovic, V., & Pichler, P. (2001). Technological innovation and initial public offerings. Review of Financial Studies, 14, 459-494. https://doi.org/10.1093/rfs/14.2.459
Meluzín, T., & Zinecker, M. (2016). Trends in IPOs: the evidence from CEE capital markets. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(2), 327–341. https://doi.org/10.12775/EQUIL.2016.015
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 53(3), 433-43.
Modigliani, F., & Miller, M. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 48, 261-297.
Myskova, R. (2009, September). Satisfaction of financial managers with accounting information system. In 3rd International Conference on Management, Marketing and Finances, 2009, WSEAS, Houston, USA.
Pagano, M., Panetta, F., & Zingales, L. (1998). Why do companies go public: an empirical analysis. Journal of Finance, 53, 27-64. https://doi.org/10.1111/0022-1082.25448
Peterle, P., & Berk, A. (2016). IPO cycles in Central and Eastern Europe: what factors drive these cycles? Czech Journal of Economics and Finance, 66(2), 113-139.
Pietrzak, M. B., Fałdziński, M., Balcerzak, A. P., Meluzín, T., & Zinecker, M. (2017). Short-term shocks and long-term relationships of interdependencies among Central European capital markets. Economics & Sociology, 10(1), 61-77. https://doi.org/10.14254/2071-789X.2017/10-1/5
Pohulak-Żołędowska, E. (2016). Innovation in contemporary economies. Oeconomia Copernicana, 7(3), 451-466. https://doi.org/10.12775/OeC.2016.026
PWC, PriceWaterhouseCoopers UK. (2017). IPO Watch Europe. Retrieved form https://www.pwc.co.uk/services/audit-assurance/capital-markets-accounting-advisory-and-structuring/insights/ipowatch-europe-all-editions.html
Rees, W. P. (1997). The arrival rate of initial public offers in the UK. European Financial Management, 3(1), 45-62. https://doi.org/10.1111/1468-036X.00030
Ritter, J. R. (1984). The ‘Hot Issue’ market of 1980. Journal of Business, 57(2), 215-240. https://doi.org/10.1086/296260
Ritter, J. R. (2011). Equilibrium in the IPO market. Financial Economics, 3, 347–374. https://doi.org/10.2139/ssrn.1822542
Ritter, J. R., & Welch, I. (2002). A review of IPO activity, pricing, and allocations. Journal of Finance, 57(4), 1795-1828. https://doi.org/10.1111/1540-6261.00478
Ross, S. M. (2017). Introductory statistics. Academic Press, Elsevier. https://doi.org/10.1016/B978-0-12-804317-2.00031-X
Rydqvist, K., & Högholm, K. (1995). Going public in the 1980s: evidence from Sweden. European Financial Management, 1(3), 287-315. https://doi.org/10.1111/j.1468-036X.1995.tb00021.x
Scott, J. H. (1976). A theory of optimal capital structure. Bell Journal of Economics, 7(1), 33-54. https://doi.org/10.2307/3003189
Theodoridis, S., & Koutroumbas, K. (2008). Pattern Recognition. Academic Press.
Żelazny, R., & Pietrucha, J. (2017). Measuring innovation and institution: the creative economy index. Equilibrium. Quarterly Journal of Economics and Economic Policy, 12(1), 43-62. https://doi.org/10.24136/eq.v12i1.3