Does the Market Incorporate Previous IPO Withdrawals When Pricing Second-Time Ipos?

Abstract

We find that second-time IPOs (issuers that return to the IPO market successfully after withdrawing their first IPOs) sell at a significant discount relative to similar contemporaneous first-time IPOs (IPOs that succeed in their first attempts). This result indicates that the withdrawal event, which is public information, is incorporated into offer prices when withdrawn-IPO firms return for second IPO attempts. We also find that, 1) second-time IPOs experience similar magnitude of price revision and initial return as comparable first-time IPOs, 2) in the long run, second-time IPOs do not underperform contemporaneous first-time IPOs in either stock price or operating performance. These findings suggest that the discount is appropriate and that the market fully adjusts the offer price of second-time IPOs to reflect the negative information conveyed by their previous withdrawals.

Keywords: IPO Withdrawal, First-Time IPOs, Second-Time IPOs, Valuation Discount

JEL Classification: G14, G34, G39