Pension Funds and IPO Pricing. Evidence from a Quasi-Experiment.
69 Pages Posted: 30 Mar 2018 Last revised: 9 Sep 2020
Date Written: April 26, 2018
We exploit a quasi-experiment arising from the government-forced changes to the assets under management and investment policy of the Polish pension funds. We test whether this new regulation and its resultant demand shock on the investors’ side, leads to changes in the IPO pricing and the subsequent stock’s performance. We report material and a statistically significant decrease in the IPO proceeds (IPO size) in the post-treatment period equal to over 107 million PLN (34 million USD). We find no empirical evidence that the treatment had a significant effect on the first-day IPO underpricing or on the long-term underperformance. We conclude that the demand shock resulting from the pension system reform that primarily aimed at solving fiscal problems effectively eliminated the so-called ‘pension premium’ of higher IPO valuations. Thus, it indirectly impaired companies’ power of raising money in the public stock market. Furthermore, we report a decrease in the average first-day IPO returns among big issuers that is consistent with the book building literature.
Keywords: IPO Pricing, First-Day Returns, Long-Term Underperformance, Natural Experiment, Event Study
JEL Classification: G11, G14
Suggested Citation: Suggested Citation