IPOs with reserved shares and their post-IPO performance

• Main Authors: Chua, Chiok Woon, Zhang, Jerica Meiqing, Yee, Joyce Puay Ping
• Other Authors: Chong Beng Soon
• Format: Final Year Project
• Language: English
• Published: 2010
• Subjects: DRNTU::Business::Finance::Equity
• Online Access: http://hdl.handle.net/10356/38534
• Institution: Nanyang Technological University

Can the allocation of reserved shares to a firm’s employees be exploited as a possible signaling tool that separates high-quality firms from low-quality firms at their initial public offering (IPO)? In this paper, we will explore the signaling effect of reserved shares by investigating the relationship between reserved shares and a firm’s post-IPO performance. Specifically, we will analyse a firm’s post-IPO performance based on its stock returns and operating performance. Utilising cumulative market-adjusted abnormal returns (MAAR), this study provides preliminary evidence that firms with a greater proportion of reserved shares generally experience higher stock returns. However, employing return on assets (ROA), return on equity (ROE) and return on sales (ROS) as proxies of a firm’s operating performance, we find no significant relationship between reserved shares and a firm’s operating performance.