Comparative study of the impact of the Global Financial Crisis on IPOs underpricing and long-term performance in London and Singapore.

Details

Supervisors

Grégoire, Philippe

Faculty

Louvain School of Management

Degree label

Master [120] en Ingénieur de gestion

Abstract

This thesis has for objectives to try to better understand the influence of markets shocks on IPOs all over the world. In order to do so, a few questions have been answered. First of all, we studied the impact of the financial crisis of 2008 on IPOs underpricing. Underpricing being a famous phenomenon in the world of IPOs, we could not study IPOs without underpricing. Secondly, we looked at the long-term performance of IPOs compared to a small-cap index. This allowed us to see whether the crisis has impacted the general performance of those firms. Finally, we compared underpricing and long-term performance of foreign and local IPOs in order to see if, on a single market, different groups of IPOs have differently or similarly reacted to the crisis. We also looked at two exchanges in order to compare the answers we got to all these questions so as to try to generalize or on the contrary find differences among them. These two exchanges are the London Stock Exchange (LSE) and the Singapore Exchange (SGX). We identified IPOs entered on LSE and SGX from 2004 until 2012. We obtain a total of 182 companies listed on the LSE and 251 companies listed on the SGX on that period of time. In order to compute underpricing, we used a market adjusted measure. This has allowed us not to be biased by the high volatility of markets during the crisis. We decided to use the Buy-and-Hold Abnormal Returns in order to study long-term performance. This is the best suited methodology for long-term performance and the most usually used in the literature. We also computed an alternative measure of performance called “Wealth Relative”. This thesis has come up with several interesting results. First of all, both underpricing and long-term underperformance have been proven to exist on both SGX and LSE. We also observed that the IPO market shrunk during the crisis and recovered afterwards. However it never came back to its pre-crisis level. Secondly, the historical difference in terms of underpricing between Singapore and the UK has been verified. Furthermore, we were not able to conclude that the crisis has had an impact on this difference. Thirdly, even though we observed underperformance on both markets, we couldn’t conclude that one of the markets performed better/worse than the other one. Furthermore, both markets have experienced a very dissimilar influence of the crisis on their long-term performance. While new listings on SGX have shown a constant performance, listings on LSE have seen their performance decreasing with the crisis. Finally, we have also run a few analyses looking at the impact of the origin of firms. Even if some interesting results have been observed, the lack of significance did not allow us to draw any further conclusion. However it seems that LSE has been more homogeneously impacted by the crisis than SGX.