The Impact of IPO on The Returns of Existing Stocks within The Same Industry and Sector: Evidence from SET100
Post by MSF Chula at Sunday, 10 January 2021 06:02 PM

This paper investigates the impact of IPO on the return of the existing stocks within the same industry and sector, evidence from SET100 of Thailand, by measuring abnormal returns on the existing stocks which are in the same industry or sector as IPO stocks around IPO approval announcements. From studying the cumulative abnormal returns (CAR) of the existing stocks, I found that CARs in several event windows are positive significantly which imply that the existing stocks get positive effects from IPO approval announcements due to the positive cumulative abnormal returns. Then, from examining the different impact between the existing stocks in the same sector as IPO stocks and those in the different sector, I found that the existing stocks in the same sector as IPO stocks gain higher abnormal return than the stocks in the different sector. Lastly, I determine the relationship of the existing stocks and IPO’s industry or sector by examining correlations between the existing stock returns and IPO’s industry index or sector index returns. I found that the higher correlations between the existing stock returns and IPO’s industry index returns generate the greater abnormal return for existing stocks. However, the relationship between the existing stocks and IPOs’ sector indexes is insignificantly correlated.

In sum, IPO approval can give positive signal of market growth potential to completing firm. This reduces information asymmetry by revealing more accurate information. Moreover, the existing stocks having the higher substitutability of an IPO will get the greater price impact.

Last updated at Sunday, 10 January 2021 06:02 PM