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http://ssrn.com/abstract=251672
 
 

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On the Anticipation of IPO Underpricing: Evidence from Equity Carve-Outs


Lawrence M. Benveniste


University of Minnesota - Twin Cities - Carlson School of Management

Huijing Fu


Texas Christian University

Paul J. Seguin


University of Minnesota - Twin Cities - Carlson School of Management

Xiaoyun Yu


Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

August 1, 2008

Journal of Corporate Finance, Forthcoming

Abstract:     
We investigate IPO market efficiency using a sample of equity carve-outs offered during the period of 1985-2005. Unlike IPOs examined in previous studies where trading during the pre-IPO book-building period does not exist and trading on the IPO date is rationed, in equity carve-outs, investors can trade in the non-rationed market for shares of the parent, which holds a significant fraction of the subsidiary. We find that the subsidiary's initial day return is significantly related to its parent's return over the book-building period, but unrelated to its parent's contemporaneous return. Neither the pre-IPO price revision of the subsidiary nor the return to the parent on the initial trading day can be predicted. While the portion of the subsidiary's initial return unpredictable from information available during the book-building period is significantly related to its parent's contemporaneous return, the predictable component of the initial return is not. We interpret these results as evidence consistent with market efficiency.

Number of Pages in PDF File: 47

Keywords: initial public offerings, underpricing, carve-outs, market efficiency

JEL Classification: G14, G30

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Date posted: December 11, 2000 ; Last revised: May 14, 2014

Suggested Citation

Benveniste, Lawrence M. and Fu, Huijing and Seguin, Paul J. and Yu, Xiaoyun, On the Anticipation of IPO Underpricing: Evidence from Equity Carve-Outs (August 1, 2008). Journal of Corporate Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=251672 or http://dx.doi.org/10.2139/ssrn.251672

Contact Information

Lawrence M. Benveniste
University of Minnesota - Twin Cities - Carlson School of Management ( email )
321 19th Avenue South
774 Management and Economics
Minneapolis, MN 55455
United States
612-624-4563 (Phone)
612-626-1335 (Fax)
Huijing Fu (Contact Author)
Texas Christian University ( email )
Fort Worth, TX 76129
United States
817-257-7148 (Phone)
817-257-7227 (Fax)
Paul J. Seguin
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
(612) 626-7861 (Phone)
Xiaoyun Yu
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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