IPO anomalies and innovation capital

Chen Lung Chin, Picheng Lee, Gary Kleinman, Pei Yu Chen

Research output: Contribution to journalArticleResearchpeer-review

9 Citations (Scopus)

Abstract

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 periods 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.

Original languageEnglish
Pages (from-to)67-91
Number of pages25
JournalReview of Quantitative Finance and Accounting
Volume27
Issue number1
DOIs
StatePublished - 1 Aug 2006

Fingerprint

Initial public offerings
Innovation
Anomaly
Underpricing
Patents
Expenditure
Patent citations
Market performance
Information asymmetry
Taiwan
Signaling model
Long-term performance
Stock performance
Assets
Long period

Keywords

  • Anomalies
  • Initial public offerings
  • Innovation capital
  • Patent
  • R&D
  • Signaling

Cite this

Chin, Chen Lung ; Lee, Picheng ; Kleinman, Gary ; Chen, Pei Yu. / IPO anomalies and innovation capital. In: Review of Quantitative Finance and Accounting. 2006 ; Vol. 27, No. 1. pp. 67-91.
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IPO anomalies and innovation capital. / Chin, Chen Lung; Lee, Picheng; Kleinman, Gary; Chen, Pei Yu.

In: Review of Quantitative Finance and Accounting, Vol. 27, No. 1, 01.08.2006, p. 67-91.

Research output: Contribution to journalArticleResearchpeer-review

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