Initial public offerings in the port industry: exploring the determinants of underpricing

ABSTRACT

The capital-intensive nature of the port industry and the long payback period of port investments traditionally determine high financial needs for operating the business. Due to the growing financial requirements for developing greenfield mega-projects and feeding international terminal operators’ overseas expansion, equity markets are expected to extend their role in promoting the industry. In this perspective, the underpricing phenomenon, which represents a direct cost for the issuer during initial public offering (IPO) and discourages companies from going public, is neglected by port literature. The paper explores the antecedents of IPO underpricing in ports. Building upon extant finance and port literature, firm characteristics, transaction features, and country-specific variables are tested as determinants of IPOs’ initial returns. For the aim of this study, 58 port-related IPOs taking place on international stock exchanges are examined, and ordinary least squares regression analysis is performed. The study offers unprecedented understandings of the phenomenon and supports port managers in facing financial challenges. Before launching the IPO, financial executives are invited to carefully identify time-window opportunities, and to monitor underwriters’ reputation when selecting financial partners. Findings bring insights for policymakers, as the public listing of port companies emerges a viable option for implementing port reform.

KEYWORDS:

• Ports
• initial public offering
• underpricing
• initial return
• underwriter

Acknowledgments

The author is grateful to the three anonymous reviewers for their stimulating comments and suggestions on the earlier versions of the manuscript. Mistakes and omissions are entirely the author’s own responsibility.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The initial return refers to the difference between the post-IPO equilibrium price – typically the first trade price, the first closing price, or a closing price observed a few days after the IPO date (Loughran and Ritter 2002) – and the offering price (Ljungqvist and Wilhelm 2003).