Market Segmentation and IPO-Underpricing: The German Experience

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Market Segmentation and IPO-Underpricing: The German Experience However, this relationship is already tested with the gross proceeds per nominal capital as an explanatory variable. 4.2. Empirical Findings Based on Panel A the average market-adjusted underpricing of the 435 initial public offerings is 42.34 percent in total. The median is 11.25 percent and the standard deviation is 75.80, which shows a high concentration of the underpricing in the left tail of the distribution. Con- cerning the individual market segments, the mean underpricing is, with 53.64 percent, the highest in the Neuer Markt and with 11.16 percent the lowest in the Official Trading. Table 5: Underpricing in Germanys‘ Market Segments 1997-2002 (Panel A) Panel A Official Trading Regulated Market Unofficial Regulated Market Neuer Markt Numbers of IPOs 70 45 22 298 435 Underpricing (Mean) 11.16 17.30 39.65 53.64 (54.30) 4 Total 42.34 Median 2.67 4.65 16.98 19.97 11.25 Minimum -14.67 -80.92 -35.67 -24.31 -80.92 Maximum 139.07 176.00 236.44 768.20 768.20 Standard Deviation 26.95 45.20 61.24 84.90 75.80 Skewness 3.12 1.80 1.63 3.28 3.56 Kurtosis 12.63 7.26 5.88 21.19 24.99 t-statistic 1 (p-value) Wilcoxon-Signed-Rank 2 (p-value) Jarque-Bera 3 (p-value) 3.46 (0.0009) 4.78 (0.0000) 383.55 (0.0000) 1 H0 : Mean Underpricing = Zero 2 H0 : Median Underpricing = Zero 3 H0 : Mean Underpricing is normally distributed 4 Initial Return adjusted with the NEMAX-All-Share-Index 2.57 (0.0137) 3.23 (0.0012) 58.33 (0.000) 3.04 (0.0063) 2.76 (0.0058) 17.29 (0.0002) 10.91 (0.0000) 13.03 (0.0000) 4,644.74 (0.0000) 11.65 (0.0000) 14.50 (0.0000) 9,682.49 (0.0000) Considering the t-statistics, the results for a positive mean underpricing are all significant at = 0.01, except for the Regulated Market (significant at = 0.05). But the Jarque-Bera-test- statistic shows that the underpricing is not normally distributed (significant at = 0.01), which is obvious because of the positive values of the skewness and kurtosis-values bigger Adrian Hunger Page 21
Market Segmentation and IPO-Underpricing: The German Experience than 3. Insofar, the non-parametric Wilcoxon-Signed-Rank-Test is a better test for a positive underpricing. But even these results are statistically significant at = 0.01 for each individual market segment as well as for the whole market. Therefore, the results as shown in Table 5 imply three features. First, the results about the degree of underpricing confirm the findings of Hunger but are two to four times higher than the findings of, for instance, Ljungqvist, Kaserer/Kempf, Wasserfallen/Wittleder or Uhlir. 32 Second, the underpricing is different in each individual market segment. Underpricing is the highest in the Neuer Markt and the lowest in the Official Trading. Third, this result stands in contrast of what would be expected regarding Rocks implication of his model that the underpricing is expected to be lower the larger the market is. As it is shown in Table 3, the Neuer Markt is the second largest market segment for IPOs regarding the initial capital and the gross proceeds of the issuers, and the largest market segment regarding the number of IPOs. 68.51 percent of the IPOs happened in the Neuer Markt and 43.44 percent of the total gross proceeds are raised at the Neuer Markt. Assuming that the number of IPOs, the initial capital and the gross proceeds are proxies for a high number of (potential) investors the Neuer Markt is the second largest IPO-market segment in the German Equity Market. Insofar, the underpricing in the Neuer Markt was expected to be not the highest. To rule out a mere coincidence of these findings it is necessary to have a closer look on the underpricing of the individual market segments. Therefore, it is tested, if the mean- and the median-underpricing of the market segments are equal or if they are significant different from each other. The results are shown in Table 6. The F-Test-statistic with 8.19 shows that the mean-underpricing in the four market segments is not equal (significant at = 0.01); but because of the leptokurtic distribution with a long right tail, the non-parametric Kruskal-Wallis-Test may be a better test-statistic for the above mentioned purpose. However, even the Kruskal-Wallis-Test-statistic for the four segments confirms with 36.41 that the mean-underpricing is not equal (significant at = 0.01). 32 According to Hunger (2001), the market-adjusted underpricing for 262 IPOs from 1997 to 1999 is about 43.70 percent and differs among the market segments. Ljungqvist (1997) states an underpricing of about 10.57 percent for 189 IPOs from 1970-1993 for the whole market. Kaserer/Kempf (1995) do not mention the market segmentation in their empirical findings and estimate the underpricing for the whole market with 13.99 percent. Wasserfallen/Wittleder (1994) do not distinguish between market segments and state the average underpricing from 1961-1987 with 17.58 percent. According to Uhlir (1989), the average underpricing is without considering the market segmentation, about 21.46 percent from 1977-1987. Adrian Hunger Page 22
Page 1 and 2: Submitted from: Market Segmentation
Page 3 and 4: Market Segmentation and IPO-Underpr
Page 15 and 16: 3.2. Facts & Figures Market Segment
Page 21: Market Segmentation and IPO-Underpr
Page 27 and 28: 4.3. Discussion Market Segmentation
Page 31 and 32: Appendix Market Segmentation and IP
Page 33 and 34: References Market Segmentation and
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Market Segmentation and IPO-Underpricing: The German Experience

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