풋백옵션 규제이후 신규공모주의 초기 저평가와 시장조성가설에 관한 연구 (Initial Returns of IPO Firms and Put back Options)

서지정보

· 발행기관 : 한국증권학회
· 수록지 정보 : Asia-Pacific Journal of Financial Studies / 36권 / 4호 / 657 ~ 694페이지
· 저자명 : 조성욱, 이종룡

초록

Past studies have shown that initial public offering (IPO) firms have high returns on the first few days of trading, especially the first day. This paper examines how the market making activity of underwriters affects the initial returns of IPO stocks when investors are given “put back” options. Under the current security-issuance regulations in Korea, investors have the right to sell their stocks back to underwriters within the first month of trading at the 90% of the offer price. With put back options, investors investing in IPO stocks are protected as they can recover a substantial part of their investment if the price of IPO stocks falls below 90% of the offer price.
The value of a put back option reflects the risk that the price of the IPO stock might fall below the offer price. A higher offer price has a higher risk of its price falling below the 90% level, so its put back option has a higher value. Thus, the initial return and the value of a put back option might be negatively correlated. Moreover, the value of a put back option serves as a proxy for the risk that the underwriters face. Therefore, underwriters as market makers might tend to lower the initial offer price of an IPO to reduce the risk of the price falling below the 90% threshold.
In this paper, we show how to derive the value of a put back option. We use Conze and Viswanathan’s (1999) lemma which relies on common, standard assumptions regarding option pricing. Then, we examine factors affecting initial returns of the IPO stocks of 174 IPO stocks in the Korea Exchange Market from September 2003 to June 2006, when investors were given put back options. Put back options were not allowed before September 2003. Twenty firms are from the Korean Stock Exchange (or KSE, equivalent to the NYSE), the remaining 154 firms are small venture firms registered on the Korea Securities Dealers Automated Quotations (KOSDAQ, equivalent to the NASDAQ). IPOs are dispersed over the sample time period. For each IPO stock, we have collected detailed information such as offer price, subscription ratio, proceed, firm age, accounting information, etc. from various sources. In addition, we have also derived price risks reflected in the put back option value.
Compared to the offer price, the averages of the first day return and aftermarket returns are very high, reaching over 40% of the return. On average, high returns on the first day remain for the most of the first month. When industry returns, instead of market returns, are controlled for, initial returns of IPO firms are still very high, suggesting that these high returns occur across industries. The mean value of the put back option using the offer price is 51.2 won and the mean price risk for 10,000 won as the underlying asset value is 56.4, respectively.
By controlling for IPO proceeds, firm age, market condition, and firm characteristics, this study empirically shows that the first day of trading and aftermarket returns are negatively related with the price risk reflected in values of put back options. While the price risk is negatively related to initial returns, subscription ratio is positively related to initial returns. Firm specific characteristics such as firm age and choice of market does not appear to be related to initial returns. The analyses using cumulative abnormal returns (CARs) of IPOs firms over various time periods (5th day, 10th day, 15th day, 20th day, 25th day) during the one month period also shows similar results. CARs are strongly negatively linked to the price risk. These results are robust even when we control for matching industry returns for each IPO firm. Using only the IPO firms in the KOSDAQ yield similar empirical results.
In short, this paper shows that short term underpricing of IPO stocks is negatively related to their price risk for Korean IPO firms. The empirical results also suggest that market making of underwriters affect initial returns of IPO stocks.

영어초록

Past studies have shown that initial public offering (IPO) firms have high returns on the first few days of trading, especially the first day. This paper examines how the market making activity of underwriters affects the initial returns of IPO stocks when investors are given “put back” options. Under the current security-issuance regulations in Korea, investors have the right to sell their stocks back to underwriters within the first month of trading at the 90% of the offer price. With put back options, investors investing in IPO stocks are protected as they can recover a substantial part of their investment if the price of IPO stocks falls below 90% of the offer price.
The value of a put back option reflects the risk that the price of the IPO stock might fall below the offer price. A higher offer price has a higher risk of its price falling below the 90% level, so its put back option has a higher value. Thus, the initial return and the value of a put back option might be negatively correlated. Moreover, the value of a put back option serves as a proxy for the risk that the underwriters face. Therefore, underwriters as market makers might tend to lower the initial offer price of an IPO to reduce the risk of the price falling below the 90% threshold.
In this paper, we show how to derive the value of a put back option. We use Conze and Viswanathan’s (1999) lemma which relies on common, standard assumptions regarding option pricing. Then, we examine factors affecting initial returns of the IPO stocks of 174 IPO stocks in the Korea Exchange Market from September 2003 to June 2006, when investors were given put back options. Put back options were not allowed before September 2003. Twenty firms are from the Korean Stock Exchange (or KSE, equivalent to the NYSE), the remaining 154 firms are small venture firms registered on the Korea Securities Dealers Automated Quotations (KOSDAQ, equivalent to the NASDAQ). IPOs are dispersed over the sample time period. For each IPO stock, we have collected detailed information such as offer price, subscription ratio, proceed, firm age, accounting information, etc. from various sources. In addition, we have also derived price risks reflected in the put back option value.
Compared to the offer price, the averages of the first day return and aftermarket returns are very high, reaching over 40% of the return. On average, high returns on the first day remain for the most of the first month. When industry returns, instead of market returns, are controlled for, initial returns of IPO firms are still very high, suggesting that these high returns occur across industries. The mean value of the put back option using the offer price is 51.2 won and the mean price risk for 10,000 won as the underlying asset value is 56.4, respectively.
By controlling for IPO proceeds, firm age, market condition, and firm characteristics, this study empirically shows that the first day of trading and aftermarket returns are negatively related with the price risk reflected in values of put back options. While the price risk is negatively related to initial returns, subscription ratio is positively related to initial returns. Firm specific characteristics such as firm age and choice of market does not appear to be related to initial returns. The analyses using cumulative abnormal returns (CARs) of IPOs firms over various time periods (5th day, 10th day, 15th day, 20th day, 25th day) during the one month period also shows similar results. CARs are strongly negatively linked to the price risk. These results are robust even when we control for matching industry returns for each IPO firm. Using only the IPO firms in the KOSDAQ yield similar empirical results.
In short, this paper shows that short term underpricing of IPO stocks is negatively related to their price risk for Korean IPO firms. The empirical results also suggest that market making of underwriters affect initial returns of IPO stocks.

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