Initial public offerings in the hospitality industry - Underpricing and overperformance

Cornell Hotel and Restaurant Administration Quarterly

Volumn 37, Issue 5, 1996, Pages 18-25

  Canina, Linda ^a  

^a NONE

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EID: 0030268661     PISSN: 00108804     EISSN: None     Source Type: Journal    
DOI: 10.1016/0010-8804(96)88971-3     Document Type: Article

References (22)

1. 1 The initial-day return is the difference between the closing price and the offer price as a percentage of the offer price, at the close of the first day of trading.
2. 2 For example, the New England Applebee's franchisee started with an investor pool of two, the owner and one financial backer. See: Michael L. Oshins, "'Skip' Sack and Applebee's: How Pub Ventures Went Public," Cornell Hotel and Restaurant Administration Quarterly, Vol. 37, No. 3 (June 1996), pp. 55-63.
3. 3 Among the first to document apparent underpricing were: D. Logue, "On the Pricing of Unseasoned Equity Issues, 1965-69," Journal of Financial and Quantitative Analysis, Vol. 8 (1973), pp. 91-103; and Roger Ibbotson, "Price Performance of Common Stock New Issues," Journal of Financial Economics, Vol. 2 (1975), pp. 235-272.
4. 3 Among the first to document apparent underpricing were: D. Logue, "On the Pricing of Unseasoned Equity Issues, 1965-69," Journal of Financial and Quantitative Analysis, Vol. 8 (1973), pp. 91-103; and Roger Ibbotson, "Price Performance of Common Stock New Issues," Journal of Financial Economics, Vol. 2 (1975), pp. 235-272.
5. 4 Roger G. Ibbotson, Jody L. Sindelar, and Jay R. Ritter, "The Market's Problems with the Pricing of Initial Public Offerings," Journal of Applied Corporate Finance, Vol. 7 (1994), pp. 66-74.
6. 5 K. Rock, "Why New Issues are Underpriced," Journal of Financial Economics, Vol. 15 (1986), pp. 187-212; R. Beatty and Jay Ritter, "Investment Banking, Reputation, and the Underpricing of Initial Public Offerings," Journal of Financial Economics, Vol. 15 (1986), pp. 213-232; and R. Carter and S. Manaster, "Initial Public Offering and Underwriter Reputation," Journal of Finance Vol. 45 (1990), pp. 1045-1067.
7. 5 K. Rock, "Why New Issues are Underpriced," Journal of Financial Economics, Vol. 15 (1986), pp. 187-212; R. Beatty and Jay Ritter, "Investment Banking, Reputation, and the Underpricing of Initial Public Offerings," Journal of Financial Economics, Vol. 15 (1986), pp. 213-232; and R. Carter and S. Manaster, "Initial Public Offering and Underwriter Reputation," Journal of Finance Vol. 45 (1990), pp. 1045-1067.
8. 5 K. Rock, "Why New Issues are Underpriced," Journal of Financial Economics, Vol. 15 (1986), pp. 187-212; R. Beatty and Jay Ritter, "Investment Banking, Reputation, and the Underpricing of Initial Public Offerings," Journal of Financial Economics, Vol. 15 (1986), pp. 213-232; and R. Carter and S. Manaster, "Initial Public Offering and Underwriter Reputation," Journal of Finance Vol. 45 (1990), pp. 1045-1067.
9. 6 F. Allen and G. Faulhaber, "Signaling by Underpricing in the IPO Market," Journal of Financial Economics, Vol. 23 (1989), pp. 303-323; M. Grinblatt and C. Hwang, "Signaling and the Pricing of New Issues," Journal of Finance, Vol. 44 (1989), pp. 393-420; and I. Welch, "Seasoned Offerings, Imitation Costs and the Underpricing of Initial Public Offerings," Journal of Finance, Vol.44 (1989), pp. 421-449.
10. 6 F. Allen and G. Faulhaber, "Signaling by Underpricing in the IPO Market," Journal of Financial Economics, Vol. 23 (1989), pp. 303-323; M. Grinblatt and C. Hwang, "Signaling and the Pricing of New Issues," Journal of Finance, Vol. 44 (1989), pp. 393-420; and I. Welch, "Seasoned Offerings, Imitation Costs and the Underpricing of Initial Public Offerings," Journal of Finance, Vol.44 (1989), pp. 421-449.
11. 6 F. Allen and G. Faulhaber, "Signaling by Underpricing in the IPO Market," Journal of Financial Economics, Vol. 23 (1989), pp. 303-323; M. Grinblatt and C. Hwang, "Signaling and the Pricing of New Issues," Journal of Finance, Vol. 44 (1989), pp. 393-420; and I. Welch, "Seasoned Offerings, Imitation Costs and the Underpricing of Initial Public Offerings," Journal of Finance, Vol.44 (1989), pp. 421-449.
12. 7 See: Rock, pp. 187-212; and Carter and Manaster, pp. 1045-1067.
13. 8 Ibbotson (1975), p. 270.
14. 9 See: Allen and Faulhaber, pp. 303-323; Grinblatt and Hwang, pp. 393-420; and Welch, pp. 421-449.
15. 10 Purchasing a warrant gives the investor the right to exchange the warrant for stock in the company when the stock is issued. Warrants are traded like stock shares; that is, the prices of both vary according to market demand.
16. 11 See: Ibbotson, Sindelar, and Ritter (1994), pp. 66-74.
17. 12 Ibid.
18. 13 Roger G. Ibbotson, Jody L. Sindelar, and Jay R. Ritter, "Initial Public Offerings" Journal of Applied Corporate Finance,Vol. 1 (1988), pp. 37-45; and Ibbotson et al. (1994), pp. 66-74.
19. 13 Roger G. Ibbotson, Jody L. Sindelar, and Jay R. Ritter, "Initial Public Offerings" Journal of Applied Corporate Finance,Vol. 1 (1988), pp. 37-45; and Ibbotson et al. (1994), pp. 66-74.
20. 14 The difference between the average initial return in the two cycles is insignificantly different from zero.
21. 15 When the industry's recession was isolated as a separate period - with 1988-1991 defined as a cold cycle and 1979-1987 and 1992-1994 as hot cycles - the average initial returns were 47.92 percent for the cold cycle and 18.69 percent for the hot period.
22. 16 See: Ibbotson, Sindelar, and Ritter (1994), pp. 66-74.