Expensive Goods, Inexpensive Equities: An Explanation of “IPO Hot Time” from Market Condition Perspective
Xiaomin Guo

Hot initial public offering (IPO) time is commonly defined as the time period during which the degree of issuance underpricing is higher or number of issuance is large. Such definition generates the dilemma of why private firms are willing to leave money on the table. This paper identifies the hot and cold IPO time using synchronous macroeconomic and financial market conditions and provides a new explanation for this dilemma. I find that the hot time of IPO is positively affected by business cycle and systematic risk expectation; however, the idiosyncratic risk carried by equity sector is not influential to the IPO return expectation. The degree of IPO discount is related to the market condition closer than to the firm fundamental values and operating risk. These findings are consistent with the empirical evidence of firms’ willingness to discount issuance during expansionary business cycles, regardless of the reduction of funds raised and the higher leverage risk.

Full Text: PDF     DOI: 10.15640/jibe.v2n3a3