Initial Public Offerings in Hot and Cold Markets

By Jean Helwege, Nellie Liang. 2004

419 citations recorded by the source corpus.

The literature offers many explanations for why the IPO market cycles from hot to cold. These include theories in which hot markets represent clusters of IPOs in a new industry, and signaling models that predict that hot markets draw in better quality firms. Others suggest hot market IPOs' stock returns reflect their poor quality. We compare IPOs over cycles during 1975–2000 and find that hot and cold IPO markets do not differ so much in the characteristics of the firms that go public as in the quantity of firms that go public. Both hot and cold IPOs are largely concentrated in the same narrow set of industries and they have few distinctions in profits, age, or growth potential. Our results suggest that hot markets are not driven primarily by changes in adverse selection costs, managerial opportunism, or technological innovations, but more likely reflect greater investor optimism.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/5e20db00e2fdd6d1190b34e6e38a11f6a85d27f7

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Citations in the corpus

Hot Markets, Investor Sentiment, and IPO Pricing (2003, neutral): “Helwege and Liang (1996) specifically examine the quality of IPO firms in ‘hot’ and ‘cold’ markets.”
Strategic IPOs and product market competition (2011, background): “We follow Helwege and Liang (2004) and Pástor and Veronesi (2005) and define hot IPO periods as months in which three-month moving average volume of IPOs belongs to the top”
How Persistent is the Impact of Market Timing on Capital Structure (2006, neutral): “Helwege and Liang (2004) show that hot markets attract firms from a variety of industries with different characteristics.”
Corporate Acquisitions, Diversification, and the Firm's Life Cycle: Corporate Acquisitions, Diversification, and the Firm's Life Cycle (2012, positive): “The IPO market is classified as hot, cold, or neutral following Helwege and Liang (2004). The merger/IPO boom denotes the period from 1995 to 2000.”
Financial Flexibility and Capital Structure Decision (2011, background): “The forward-looking dynamic model in Hennessy and Whited (2005) can be a promising framework in considering firms’ current financial decisions in anticipation of future financing and investment needs.”
Rational IPO Waves (2005, positive): “Following Helwege and Liang (2004), we calculate 3-month centered moving averages in which the number of IPOs in each month is averaged with the numbers of IPOs in the months immediately preceding and following that month.”
Cycles in the IPO market (2008, background): “Helwege and Liang (2004) isolate hot and cold markets, as opposed to studying general intertemporal trends, and obtain a related finding.”
Venture Capital Reputation, Post-IPO Performance and Corporate Governance (2009, methodology): “Hot IPO Market An indicator variable equal to 1if the IPO is made in the Helwege and Liang (2004) hot issue market periods”
The Effect of Issuer Conservatism on IPO Pricing and Performance (2013, neutral): “Investor sentiment and the extent to which the market is “hot” are popular issues in the initial public offering (IPO) literature (see, for instance, Ritter, 1984, 1991; Helwege and Liang, 2004; Derrien, 2005; Cornelli et al., 2006; Ljungqvis et al., 2006; Bustamante, 2012).”
IPO waves, product market competition, and the going public decision: Theory and evidence (2011, methodology): “Unlike our paper, Helwege and Liang (2004) mostly study IPO waves in the entire equity market rather than with respect to each industry, and conclude that there is no difference in the quality of firms going public in hot and cold IPO markets.”
Where Have All the IPOs Gone (2013, neutral): “…articles attempt to explain the variations in monthly, quarterly, or yearly volume, such as Lerner (1994), Lowry and Schwert (2002), Lowry (2003), Helwege and Liang (2004), Benninga, Helmantel, and Sarig (2005), P´astor and Veronesi (2005), Yung, C¸olak, and Wang (2008), and Rau and Stouraitis…”
Earnings Management in Malaysian IPOs: The East Asian Crisis, Ownership Control and Post-IPO Performance (2011, neutral): “Helwege and Liang (2004) find little evidence of different characteristics (such as company quality or operating performance) between hot and cold market IPOs; in addition, they find no difference in the use of discretionary accruals.”