Finance
MPF753 FINANCETrimester 2, 2012 | Financial Report for Greentech Company | | |
Name: Mengtian Li ID: 212018465
Name: Chaowei Jiang ID: 211676326
Word count: 1890
Executive Summary
This report aims to investigate whether Australia has the short-run IPO underpricing phenomenon in its stock market, followed with a research of the initial returns and the 2-year holding period returns of 52 Australian firms as well as relevant reasons why Facebook’s IPO experienced a failure. Numerous sources of data and information have been utilized. Nowadays, the underpricing phenomenon is very common in the American stock market. The findings of this report reveal two most important theories: the Rock’s ‘winner’s curse’ model and the Baron’s ‘Principal-Agent Theory’ model, which explain for the existence of short-run IPO underpricing in the American or Australian stock market. Therefore, the following are the causes of the failure of Facebook’ s IPO: the unstable stock market, the high initial offering price, the overestimated IPO scale, too many shares was cashed in and advertising pains, which aims to give Greentech Company some reasonable advice.
Content 1. Whether the short-run IPO underpricing exists in the Australian stock market 4 2. Performance of IPO firms after two years 10 3. Theories of underpricing 14 3.1 The ‘Winner’s curse’ model 14 3.2 The ‘Principal-Agent Theory’ model 14 4. Reasons of low initial return of Facebook 16 4.1 Unstable stock market 16 4.2 High initial offering price 16 4.3 Overestimated IPO scale 17 4.4 Too many shares was cashed in 17 4.5 Advertising pains 17
Table list
Table 1: The issue price, 1st day closing price and 1st day initial return of different firms…4
Table 2: The relationship between different industry and average 1st day initial return……6
Table 3: The relationship between different issue price and average 1st day initial return…7
Table 4: The relationship between different NPAX and
Name: Mengtian Li ID: 212018465
Name: Chaowei Jiang ID: 211676326
Word count: 1890
Executive Summary
This report aims to investigate whether Australia has the short-run IPO underpricing phenomenon in its stock market, followed with a research of the initial returns and the 2-year holding period returns of 52 Australian firms as well as relevant reasons why Facebook’s IPO experienced a failure. Numerous sources of data and information have been utilized. Nowadays, the underpricing phenomenon is very common in the American stock market. The findings of this report reveal two most important theories: the Rock’s ‘winner’s curse’ model and the Baron’s ‘Principal-Agent Theory’ model, which explain for the existence of short-run IPO underpricing in the American or Australian stock market. Therefore, the following are the causes of the failure of Facebook’ s IPO: the unstable stock market, the high initial offering price, the overestimated IPO scale, too many shares was cashed in and advertising pains, which aims to give Greentech Company some reasonable advice.
Content 1. Whether the short-run IPO underpricing exists in the Australian stock market 4 2. Performance of IPO firms after two years 10 3. Theories of underpricing 14 3.1 The ‘Winner’s curse’ model 14 3.2 The ‘Principal-Agent Theory’ model 14 4. Reasons of low initial return of Facebook 16 4.1 Unstable stock market 16 4.2 High initial offering price 16 4.3 Overestimated IPO scale 17 4.4 Too many shares was cashed in 17 4.5 Advertising pains 17
Table list
Table 1: The issue price, 1st day closing price and 1st day initial return of different firms…4
Table 2: The relationship between different industry and average 1st day initial return……6
Table 3: The relationship between different issue price and average 1st day initial return…7
Table 4: The relationship between different NPAX and
References: Cai, N, Helwege, J & Warga, A 2007, ‘Underpricing in the corporate bond market’, Review of Financial Studies, vol. 20, no. 6, pp. 2021-2046.