IPO Anomalies and Innovation Capital

44 Pages Posted: 27 Jan 2006

See all articles by Chen-lung Chin

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting

Picheng Lee

Pace University - Department of Accounting

Gary Kleinman

Montclair State University


Innovation capital are typically expensed and/or unrecognized as assets under current generally accepted accounting principles. This results in accounting-related information asymmetry. This paper examines the association of innovation capital (as measured here by the proxies of R&D expenditures and granted patents) and initial public offerings (IPO) anomalies. These anomalies include initial IPO underpricing, duration of honeymoon (a distinct feature of the Taiwanese IPO environment), and long-term performance. The theoretical model underlying this research is a signaling model. The results indicate that more innovative firms are more likely to be underpriced, and have longer honeymoon period than less innovative firms. Further, the more innovative firms have positive and growing long-term market-adjusted returns. This stands in contrast to the declining long-term stock performance of initial public offering firms that is evidenced in the literature. We conclude that pre-IPO research and development expenditures disclosed in the IPO prospectus, official monthly reports of newly developed patents released to the public, and the frequency of patent citations significantly signal both underpricing and future market performance of IPO firms in Taiwan.

Keywords: anomalies, initial public offerings, innovation capital, patent, R&D, signaling

JEL Classification: G14, M41, M44, M47, G24, O32

Suggested Citation

Chin, Chen-lung and Lee, Picheng and Kleinman, Gary, IPO Anomalies and Innovation Capital. Review of Quantitative Finance & Accounting, Vol. 27, No. 1, pp. 67-91, 2006, Pace University Accounting Research Paper No. 2006/01, Available at SSRN: https://ssrn.com/abstract=878343

Chen-lung Chin

National Chengchi University (NCCU) - Department of Accounting ( email )

No. 64, Sec 2
Chih-Nan Road
Wenshan, Taipei

Picheng Lee (Contact Author)

Pace University - Department of Accounting ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Gary Kleinman

Montclair State University ( email )

NJ 07043
United States

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