Unit IPOs : an offer mechanism for going public by smaller and riskier firms

Pao Yue-kong Library Electronic Theses Database

Unit IPOs : an offer mechanism for going public by smaller and riskier firms

 

Author: Fung, Shan Katherine
Title: Unit IPOs : an offer mechanism for going public by smaller and riskier firms
Degree: M.Sc.
Year: 2001
Subject: Going public (Securities) -- China -- Hong Kong
Securities -- Listing -- China -- Hong Kong
Small business -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Dept. of Accountancy
Pages: vi, 120 leaves : ill. ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1555503
URI: http://theses.lib.polyu.edu.hk/handle/200/4928
Abstract: This dissertation is an empirical study to identify whether smaller and riskier companies will adopt unit offering as feasible mechanism for initial public offering. The theories of Schultz (1993) and Chemmanur and Fulghieri (1997) suggest that companies employing unit IPOs have greater variability of future cash flow than the companies employing share IPOs. Consistent with their theories, companies choose unit IPOs are expected to be smaller in size, to have lower earning powers and assets level, and are more likely to raise additional equity at the later stage after listing when compared with the companies which choose share IPOs. Based on the model that the value of unit IPOs is more uncertain in comparison with the share IPOs, Schultz (1993) predicts that unit IPOs should underprice more than the share IPOs. If the companies cannot prove to have worthwhile investment projects after listing, they will probably not be able to raise additional funding at the later stage after the initial public offerings. Thus, the companies with unit IPOs are more likely to face financial difficulties and be delisted from the NASDAQ. The empirical evidence presented in this study suggests that unit offerings are used by companies with smaller size of offering, lower earning power and less assets. The sample of unit IPOs underprices more than the sample of share IPOs, however it is not at a significant level. Unit IPOs come out with additional equity offerings sooner than share IPOs at a statistically significant level. The chance of changing ownership of unit IPOs is higher than the share IPOs at a statistically significant level. Since the default rates of the companies making initial public offerings have seldom been addressed in Hong Kong, it is reasonable to examine if the existing models of corporate distress can be used to predict the IPO default rates. Both Altman's Z score and the re-estimated model by Begley, Jin and Watts are used to predict the default rates of the companies. It is found that the re-estimated model has a higher Type I error rate and lower Type II error rate in comparison with Altman's Z score. As Type I error is considered to be more costly than the Type II error, Altman's original model is still used as a diagnostic tool.

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