file151100.H.F. Camp

MASTER THESIS FINANCE
The Effect of IPOs on the Stock Price Informativeness of Peer Firms
Author: K.H.F. Camp
ANR / SNR: 401194 / 2018017
Supervisor: Dr J. Gider
Second reader: Dr F. Hosseini
Date: October 1 , 2019

Preface
This master thesis, named “The Effect of IPOs on the Stock Price Informativeness of Peer
Firms”, is the final part of the Master Finance at Tilburg University. I did my Bachelor of
Industrial Engineering at the TU/e in Eindhoven and conducted the Master of Finance between
the two years of my Master in Operations Management and Logistics.
First of all, I would like to thank my supervisor, Dr Jasmin Gider, who gave me good and
useful feedback during the process. Her feedback and guidance during our meetings helped
me in keeping a good overview on the research. Furthermore, I would like to thank her for
bringing the topic of this thesis to my attention as potentially interesting area.
Next, I would like to thank my friends, those from Tilburg University for our good collaboration
this year and for the substantive discussions we had about each other's theses. I also wish to
thank my friends from the TU/e and Hulst for keeping in touch with me in the periods that I
did not see them a lot.
Last but not least, I want to thank my parents and my brother Hugo for their support and
help with writing tips and tricks. Throughout the entire process, Hugo, was a listening ear and
gave useful advice, particularly in the last month, when my stress level increased because of
my busy schedule. During my entire study, my parents supported my decisions, especially
when they were hard to take: doing an additional Master, going to the TIMES-event the week
before my exams and going on an exchange to Porto. I am very grateful for all the support I
received.
Kasper Camp
October 1, 2019
Porto
2
Abstract
This study examines the effects of the number of rival IPOs on the price informativeness of
companies. Therefore, it uses a dataset of 27,492 companies between the years 1998 and
2017, where idiosyncratic risk is used as a measure for price informativeness. The results
show that there is a positive effect of the number of IPOs on the idiosyncratic volatility. It is
discovered that the effects increase when IPOs are more related to the firm. Furthermore,
support is found for the hypothesis that the effects are larger for smaller companies. Finally,
there are no indications that market sentiment should positively influence the effect of the
number of IPOs on the idiosyncratic risk.
3
Table of Contents
1. Introduction ................................................................................................................................... 5
2. Literature Review and Hypotheses ............................................................................................ 7
2.1 Effect IPO on competitors ........................................................................................................ 7
2.2 Price informativeness and Idiosyncratic risk .......................................................................... 9
2.3 Hypotheses ............................................................................................................................... 11
3. Data and Descriptive statistics.................................................................................................. 15
3.1 IPO data .................................................................................................................................... 15
3.2 Idiosyncratic volatility data ..................................................................................................... 16
3.3 SIC code .................................................................................................................................... 17
3.4 Final database .......................................................................................................................... 18
3.5 Sentiment data ......................................................................................................................... 19
4. Empirical model........................................................................................................................... 21
4.1 Fixed effects ............................................................................................................................. 21
4.2 Control variables ...................................................................................................................... 22
4.3 Outliers, Heteroscedasticity, Collinearity and Endogeneity ............................................... 23
5. Results .......................................................................................................................................... 27
5.1 The number of IPOs and one additional IPO ...................................................................... 27
5.2 Year specific results ................................................................................................................. 31
5.3 Data split on variables ............................................................................................................. 34
5.4 Sentiment Score ....................................................................................................................... 38
5.5 Logarithmic Models .................................................................................................................. 41
6. Conclusion.................................................................................................................................... 46
Reference list....................................................................................................................................... 49
Appendix .............................................................................................................................................. 55
A. SIC code information per Industry....................................................................................... 55
B. Regressions without control variables ................................................................................. 56
C. Correlation Matrix ................................................................................................................... 58
D. Regressions with and without fixed effects and control variables .................................. 59
E. IPO dummy models ................................................................................................................ 61
4
1. Introduction
In the stock exchange, an interesting phenomena is the IPO. This is an initial public offering,
which means that the shares of company are sold in the open stock market for the first time.
An IPO is therefore one of the biggest events in a company’s history. What makes it interesting
is that the attention of investors and therefore also the sentiment for this stock is much higher
on the days around an IPO. This results generally in high fluctuations in the stock price on the
first days. An example of a company with a high first-day return is the IPO of Ayden in 2018,
which had a 90% increase in stock price on the first day. However, some companies close
first-day market with a large decrease in stock price. In the literature, it is also a popular topic
since more than ten thousand articles are written on IPOs. However, in most of that research,
the IPO itself is the main perspective. This research takes a different perspective because it
examines the effect of an IPO on its competitors. This view is interesting for it could help to
predict the stock market fluctuations of company shares caused by IPOs of rivals. Therefore,
the main question which will be discussed in this research is:
Is there an effect for the number of IPOs on the price informativeness of

competitors?
In the past, a lot of studies are done on the intra-industry effect. An example of this is the
study by Lang and Stulz (1992) who investigate the effect of bankruptcy announcements on
competitors. However, there are also studies investigating already the intra-industry effect of
an IPO, such as Akbigbe, Borde and Whyte (2003). There are also studies measuring the
intra-industry effect of IPO withdrawal, for example the study by Hsu, Reed and Rocholl
(2010).
This research, however, will take a different perspective than previous papers. The first
significant difference with all previous papers is that instead of examining the effect of each
separate IPO, this study investigates the effect of the number of competitive IPOs in one
complete year. What is also different in this research is that the effect on an IPO is measured
by price informativeness, to be specific, by the idiosyncratic volatility, where previous papers
mainly measured the effect on company value or by determining the abnormal returns around
an IPO. A reason that the IPOs influence on the price informativeness of competitive firms is
expected, is that previous papers like Hsu, Reed and Rocholl (2010) show a negative impact
on market value of competitive firms. A decreasing market value could involve a decrease of
share prices. Since idiosyncratic volatility is calculated with the fluctuations in the stock
returns, it is expected that it is influenced by an IPO.
5
This research takes into account other aspects that are not discussed by other papers. It uses
four different measures for the number of IPOs which have a different relatedness to the
specific company. Furthermore, research is executed to learn about the differences between
years to check for the effects of final crisis. The effects of company size on the results are
also a part of this research. And finally, even the effects of market sentiment are discussed.
The research uses 255,044 observations from 27,492 different firms, from which data are
used between 1998 and 2017. In this period a total of 3,908 IPOs occurred. The idiosyncratic
risk for each company is calculated by using the Fama French 3-factor model. The company
relatedness is determined by using the SIC code of companies. The results of the regression
are controlled for year and company-specific effects. Further, firm-specific control variables
are added to the model since these factors also influence the idiosyncratic volatility.
The results show a small positive significant effect for the number of IPOs on the idiosyncratic
risk of companies. This indicates that there is positive effect between the number of IPOs in
a year and the price informativeness of the listed competitors. When checking the four
different measures for the number of IPOs, it can be seen that the effect is larger and more
significant when the IPOs are more related to the company. This shows that the effect of an
IPO affects mainly direct competitors. No differences are found between years, so there are
no specific IPO effects in years of crisis. The results show that size does influence the effect
of an IPO. It is found that smaller firms will have a higher effect on the idiosyncratic risk,
because of an IPO. Finally, the results do not indicate a role for the market sentiment in the
effect of an IPO. These findings give a new and different perspective on IPO research.
The thesis is structured as follows. In Chapter 2 the literature study can be found, as well as
the hypotheses that are written and discussed. Chapter 3 discusses all data related issues. In
Chapter 4 the empirical model is described and all choices made in the model are examined.
The results are discussed in Chapter 5, divided over multiple subchapters. Finally, the
conclusion can be found in Chapter 6, where also limitations and recommendations for future
research are given.
6
2. Literature Review and Hypotheses
This chapter consists of three subchapters. First, the effect of IPOs on competitors will be
discussed. In the second part, informativeness and especially idiosyncratic volatility will be
reviewed. Finally, in the last part, some hypotheses are constructed.
2.1 Effect IPO on competitors

Although in no papers the direct effect of the number of IPOs on the idiosyncratic risk of
competitors is investigated, there are some papers which treat the effect of an IPO on
competitors values or returns.
First of all, there is the paper by Akhigbe, Borde and Whyte (2003). They speak about the
effect on the valuation of companies measured with the cumulative abnormal returns in the
days after an IPO. The research is done using 2,493 IPOs addressing 190 different industries
in the period between 1989 and 2000. For these IPOs, rival firms were selected to do an event
study. Two main reasons are given in this paper for expecting an IPO to have industry-wide
effect. First, IPOs can make changes in an industry as a whole and therefore, they affect the
value of rivals. Second, there can be a change in the balance in an industry since a company’s
market share can grow after an IPO. Nevertheless, the average valuation effects for rival firms
do not show significant results. Negative competitive effects and positive information effects
explain this insignificant reaction. Their findings suggest that positive information effects are
more common for IPOs in regulated industries, while significant negative competitive results
are associated with large IPOs in a risky and highly competitive industry. Another finding of
the paper is that the first IPO per industry gives the highest effect on rival firms.
McGilvery, Faff and Pathan (2012) use only Australian IPOs in their study. From the 106 IPOs
used in this research, there are a total of 4,683 rival firm observations. For each of these
observations, the abnormal returns are calculated to determine the cumulative abnormal
returns to reflect abnormal firm reaction. For the hypothesis that there is a negative price
impact on rival firms around the announcement and completion of IPOs, significant results
were found. By analysing board size and CEO ownership, they found results which support
another hypothesis. This is that IPOs which have corporate governance characteristics that
have been shown to mitigate agency costs, result in a greater negative price impact on rival
firms around the completion date. Another interesting finding is that a positive statistically
significant result was found for the effect of retained ownership, which contradicts with the
expectations of the writers.
7
Hsu, Reed and Rocholl (2010) have two main goals in their paper: measure the performance
of publicly traded firms around IPOs in their industries and explain the underperformance of
publicly traded firms. Especially the first goal is related to our research. In this paper, they
distinguish between the initial filing of an IPO and its completion. What is interesting in the
methodology of this paper, is that it selects the different industries on the first two digits of
the SIC-code, whereas most other papers use all four digits of the SIC code. The research
covers the period between 1980 and 2001 and contains 158 filing events, where the
cumulative abnormal returns are calculated for in total 8,966 rival firms. They found that the
competitive aspects of IPOs have large and significant effects on rivals. There is a negative
effect at the completing of an IPO, while by withdrawing an IPO, there is a positive effect on
the competitors. After completing an IPO, a rival firm loses on average $3.271 million of its
value. The total value loss of all rivals together is $29.307 billion. The paper also shows
significant evidence of decreasing operating performance of competitors after an IPO.
A paper that presents a different perspective is the one written by Akhigbe, Johnston and
Madura (2006). It is different since they investigate the long-term effects of an IPO on
competitors instead of the short-term effects. They researched over 2,483 IPOs in the years
between 1990 and 2000, the rivalry firms were selected on SIC code. One reason for the
positive effect of an IPO on the value of competitors given in the paper, is that an IPO shows
growth opportunities in a market. So therefore, the value of competitors will increase in the
years after an IPO. Reasons to explain a negative intra-industry effect are the loss of market
share and the time of an IPO, which is possibly timed just after the peak of the market. To do
the research, abnormal returns were calculated for the situation in which you buy and hold
the stock. The effect is measured in the three years after the IPO. Significant negative effects
were found in the first year as well as in the second and third year. Furthermore, the results
show that negative industry effects are less when IPOs are smaller, when the IPO is the first
to occur in the industry in a time interval, and when the industry is regulated.
Another paper that discusses the long-term effect on rival firms is that of Spiegel and Tookes
(2018). They use IPOs between 1983 and 2012, the rival firms were selected on four digit SIC
codes. The effect is measured for a period of 3 and 5 years post-IPO. In this paper, valuation
is determined with a dynamic equation and profitability is defined as the average quarterly
revenues minus costs of goods sold divided by the total firm assets. Their result is that the
majority of the IPOs rival firms incur losses that are mostly driven by trends in the industry.
Moreover, their findings show that profitability decreases after IPOs, even if the industries are
8
still growing. As one of the main reasons, they mention increased consumer competition.
When consumers are easier to steal from each other, private companies will go public.
2.2 Price informativeness and Idiosyncratic risk

In the papers mentioned in Chapter 3.1, the effect of an IPO on competitors is determined
mainly by watching the effects on profits and abnormal returns. However, this paper has the
purpose to find what the effect is on the price informativeness. That is the informational
content of prices. There are different measures for information. Chen, Goldstein and Jiang
(2006) use the price non-synchronicity to capture firm-specific variation and probability of
informed trading. Yook (2006) uses three different measures: firm-specific market return
variation, firm-specific industry return variation and the bid-ask spread. But the measure that
is most used in papers for price informativeness is idiosyncratic volatility.
Volatility can be seen as the size of the range of values of returns for a given security.
Idiosyncratic volatility (Ivol) is the part of the volatility that is unsystematic. It is company-
specific. This means that market changes such as inflation rate, interest rate and economic
growth rate are not included. This implies that a perfect diversified portfolio would have zero
Ivol. Since for most cases a higher volatility means higher risk, Ivol is used as a risk measure
and is often related to as idiosyncratic risk. So, Ivol is most easily described as the company-
specific risk of a stock.
Idiosyncratic risk is a measure that is popular in papers. For example, Goyal and Santa-Clara
(2003) found a significant positive relation between idiosyncratic variance and return on the
market. They argue that stock variance may affect the risk aversion of investors towards the
traded assets, just like heterogeneity and capital structure. As a measure for the idiosyncratic
risk, the average stock variance measured as the arithmetic average of the monthly variance
of stock return is determined. Mashruwala, Rajgopal and Shevlin (2006) discovered that
accrual anomaly is mostly concentrated in firms with high idiosyncratic stock return volatility,
making it more risky. To estimate the expected return in this paper, they use the CAPM model.
Another paper that uses daily returns and the market model to determine Ivol is that of
Ferreira and Laux (2007). This study focuses on the relationship between corporate
governance and idiosyncratic risk. They found that firms with fewer anti-takeover protections
show higher levels of idiosyncratic risk. This indicates that openness to the market leads to
more informative stock prices. The market model used in this paper is followed by the
determination of the ratio of idiosyncratic volatility. Finally, to determine the idiosyncratic risk,
9
a logistic transformation was used. For robustness of the results, this paper also uses the
Fama French model.
This model is used in multiple different papers and will also be used in this research. This
model comes out of the paper of Fama and French (1992). They constructed a model that
describes stock returns. It is an expansion of the well-known CAPM model, where a factor is
added for both size risk as value risk. These new factors together with a market risk factor
from the CAPM model is the Fama French 3-factor model. It can be found in Equation 1.
Idiosyncratic volatility is defined as the standard deviation of the error term of the Fama
French 3-factor model.
− = + ! "# − $ + % &'( + ) *', + - (Equation 1)
In this equation is the total return of the stock portfolio and is the risk free rate, −
is the expected excess return of a stock. # is the total return of the market portfolio,
while # − is the excess return on the market portfolio. The two other variables in this
equation are size premium (&'( ) and value premium (*', ). Furthermore, for each variable,
i is the company identifier and t is the time identifier.
Ang, Hodrick, Xing and Zhang (2006) use in their paper also the Fama French 3 factor model
to determine Ivol. Their main finding is that stocks with high Ivol relative to the Fama French
3 factor model, have extremely small average returns. Qadan, Kliger and Chen (2019) also
use this model in their paper. This study uses US firm data from 1990 to 2016. They
determined that there is no constant effect of idiosyncratic volatility over time. Moreover, they
found that the effect can change over time and that it is correlated with the volatility index.
These findings indicate that in periods with an increase in the volatility index, the Ivol will
have a negative effect on future returns, while in periods of a decrease in volatility index, the
Ivol will have a positive effect on future returns.
In the years after 1992, some additional research and changes were made to the original
model. In the paper of Fama and French (1995), it was found that market and size factors in
earnings help to explain returns. However, no link was found between book-to-market-equity
and returns. Hu (2007) finds that the 3-factor model with factor premiums estimated from
structural variables gives more reliable values than the common way in forecasting portfolio
returns. Fama and French (2015) discuss a 5-factor asset pricing model, which performs better
than the 3-factor model. The two factors that are additionally included are profitability and
investment. Profitability is included as a factor. It is defined as the measure of the difference
between the returns on diversified portfolios of stock with robust and weak profitability. The
10
other factor investment measures the difference between the returns on diversified portfolios
of the stocks of low and high investment firms. Fama and French (2018) add in their paper
momentum as a sixth factor. Furthermore, they discuss some optional changes, as cash
profitability instead of operating profitability, long-short spread instead of return factors and
factors that use small or big stocks instead of factors that use both. However, for this research,
only the original Fama French 3-factor model is used by the data generating tool.
2.3 Hypotheses
In this subchapter, multiple hypotheses are drawn up by using the main question of this
research. Furthermore, it is discussed how these hypotheses are created and supported by
literature. The main question of this research is: What is the effect of the number of IPOs on
the Ivol? Since there are no papers that directly describe this relation, there is focussed on
closely related relations. The relation between Ivol and return is discussed in multiple papers
that tend however towards different conclusions. Malkiel and Xu (1997) talk about a positive
relationship, while Fink, Fink and He (2011) found that Ivol is not related at all to expected
returns. A few years later Yin, Shu and Su (2019) found that the relationship between returns
and common idiosyncratic risk is negative in the short run, positive in intermediate run and
negative again in the long run.
As discussed in Chapter 3.1, most papers give a negative relationship between an IPO and
the expected returns of competitors. Taking this together with the different effects found for
Ivol on return gives us the expectation that the numbers of IPOs will have a positive effect on
the average variance of stock return.
Hypothesis 1: There will be a positive effect between the number of IPOs and the
Ivol.
Figure 1 in Chapter 3.1 shows the IPOs per year. What stands out is that the number of IPOs
in a year fluctuates heavily over the years. The paper of Pástor and Veronesi (2005) writes
about this fluctuating number of IPOs over time. They argue that companies wait for
favourable market conditions to go IPO. This view is consistent with the findings of Brau and
Fawcett (2006). For this paper, they gave surveys to 336 CFOs and found that overall stock
market conditions are the single most important determinant of IPO timing. Chang, Kim and
Shim (2013) found that firms that go public in hot markets show lower survival probability
and weaker long-run performance compared to companies which went IPO in cold markets.
Smaller and riskier firms take advantage of the market sentiment and are followers in the IPO
market. It is interesting to see if the beta value for the number of IPOs is bigger in the years
11
with fewer IPOs (when there is a cold market). This is assumed since these IPOs have a better
long-run performance. So the companies that go IPO in cold markets are expected to be better
companies. Therefore the effect could be stronger.
Hypothesis 2: In years with little IPOs the effect on the number of IPOs is bigger.
To examine the effect of an IPO on rival firms, they should first be found. However, the way
in which this is done, differs between papers. Almost all papers use the SIC code to select the
rival firms. This is a four digit code that describes the companies sector. Most papers use all
four digits to select competitors. So only companies for which the entire code is the same, are
considered to be competitors, as can be seen for example in Akhigbe et al. (2003) and Slovin,
Suskha and Ferraro (1995). However, Yook (2006) considers a firm as a rival as the first 3
digits of the codes are the same. Furthermore, Hsu et al. (2010) only select companies on the
first 2 digits of the SIC code, while Braun and Larrain (2009) divide all the companies into 17
groups and select the rivals in that way.
A different selection method means a different relatedness to the business of the competitor
and therefore a different relatedness to the competitor. Clougherty and Duso (2009)
researched the impact of horizontal mergers on rivals. One of their findings is that the
abnormal returns of rivals were positive when taking into account the homogeneity and
heterogeneity in rival characteristics. It is expected that it works the same way for IPOs: when
rival firms are more related to an IPO, the effect should be bigger.
Hypothesis 3: The effect of the number of IPOs on the Ivol increases when IPOs
are more related to the competitive firm.
There is a lot of research done to examine the effect of company size on return. As we saw
previously in the paper by Fama and French (1992), company size is one of the three factors
and therefore considered as being important in explaining the stock return. However, in later
years, in some papers, there is doubt about the influence of company size. Astokhov,
Havranek and Novak (2019) tell us that size premiums are decreasing over the years, and
that this is happening since 1970. Another view was shown in Downs and Ingram (2000), who
found that when extreme monthly returns are censored from the data, firm size tends towards
irrelevancy.
It would be interesting to see what the influence of company size is on the effect of the
number of IPOs on Ivol. Therefore, the method of Fletcher (2007) is used, in which there has
been made a split in the data to check out the differences between big and small companies.
12
Akhigbe et al. (2006) found that in their sample (2,483 IPOs), the average market value of an
IPO was $308.03 million, while for rivals in the industry, it was $4,975.45 million. Furthermore,
in the IPO sales statistics of Ritter (2019) can be found that in the IPOs between 2001 and
2017, only 11.9% had a sales value bigger than $200 million. This all is inconsistent with the
fact that IPOs are in general small, compared to companies already present in the stock
market. It is expected that the effect of an IPO is bigger for a company that has the same
size as the IPO company in comparison with a company that is 20 times the size of the IPO
firm.
Hypothesis 4: The effect of the number of IPOs on the Ivol is bigger for small than
for big companies
Market Sentiment is the overall attitude of investors towards the financial markets. It could
be described as the general feeling on the market. An indicator of sentiment is the earlier
mentioned volatility index. Qadan et al. (2019) discovered that periods with high sentiment
will have a negative effect on future returns, while periods with a low volatility index will have
a positive effect on future returns. Similar results were found in the papers of Hengelbrock,
Theissen and Westheid (2013) and in Piccoli, Da Costa Jr., Vieira da Silva and Cruz (2018).
Molchanov and Stangl (2018) show the same long-term effect and contribute to the idea that
there is a positive effect on the short-term. So, since sentiment affects the returns in the
markets, it is also assumed that it influences the Ivol of firms. This could affect the findings
for the effect on the number of IPOs. It is presumed that the combined effect of the number
of IPOs and sentiment is bigger than the measured effect of only the number of IPOs.
Hypothesis 5: Including sentiment in the factor will increase the total effect of the
number of IPOs on the Ivol.
As a measure for sentiment, the sentiment index of Prof. Wurgler is used. The method to
calculate sentiment index appears in the paper Baker and Wurgler (2007). In this paper, two
possible equations are worked out, from which only that in which business cycle variation is
not excluded, is used. This equation is shown below as Equation 2.
&/012'/01 = −0.2419/:; + 0.2421<0>! + 0.25302AB + 0.2572AB>! + 0.112& −

E>FE
0.283A>! (Equation 2)
13
In this equation, 9/:; is the closed-end fund discount, 1<0>! is the natural log of the raw
turnover, 02AB shows the number of IPOs and 2AB>! the average first day returns. The
last two variables are & , which is the gross annual equity issuance divided by gross annual
E>FE
equity plus debt and A>! , which is the year-end log ratio of the value weighted average
market-to book ratios of payers and non-payers. The time identifier is given as t.
14
3. Data and Descriptive statistics
In this chapter, all the data are discussed. It is important to notice that there are two main
separate data generations. There is the IPO dataset with all IPOs between 1975 and 2018.
The other one is the Ivol dataset in which the idiosyncratic volatility is given for several
companies for different years. Furthermore, it is explained how the SIC code is going to be
used in the research, because this is important in understanding the data generations. With
these SIC codes, the information of the two different datasets could be combined, generating
one big data file. Eventually, the data of the sentiment score is described, which is used for
Hypothesis 5.
3.1 IPO data

The IPO data are retrieved from Jay Ritter’s website. This data file consists of all IPOs between
1975 and 2018. In total, there were 10,648 IPOs in this period, but eventually, only the IPOs
between 1998 and 2018 were used for this research, which are in total 3,908 IPOs. In Figure
1 the number of IPOs of each year is projected. When checking out this graph, a downfall in
the number of IPOs can be seen when financial crises occurred as Black Monday (1987), Dot-
Com Bubble (2000) and Credit Crisis (2008). Furthermore, it can be noticed that the average
number of IPOs in a year is a lot higher in the period between 1980 and 2000 than in the
years after 2000.
Number of IPOs per year

800
700
600
Number of IPOs
500
400
300
200
100
0
1987
1975
1977
1979
1981
1983
1985
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Year
Figure 1: Number of IPOs per year
15
Since the SIC code, necessary to match firms with competitors, was not given in the data file
from the Jay Ritter’s website, it had to be retrieved from other data sources. Most of the SIC
codes were found by using SDC database, while also the WRDS site was used. The files were
matched on CUSIP code (which is a company-specific code), company name and company
ticker. However, since there were some mistakes in the original data file and not all companies
could be matched by using the earlier described methods, a part of the SIC codes was added
manually to the data file.
3.2 Idiosyncratic volatility data

The other data necessary for this research is the idiosyncratic volatility data. A data file is used
from CRSP data. In this file, the Ivol is calculated using daily stock returns. This file contains
343,318 observations. For each of them, the Ivol, year and the cusip are given. The data are
stated for the years 1998 to 2017. Considering the cusip codes, it can be seen that there are
37,652 unique codes. Given that cusip is a company specific code, this means that there are
37,652 different companies in the dataset.
Since this data file does not include the SIC codes, these should be found in other data files.
Just like for the IPO data, the SDC database and WRDS website are used to find the SIC
codes. However, this time for merging the files, only the cusip could be done, since company
name and company ticker are not present in the original dataset. After merging, it was found
that from the 343,318 observations, there were 88,274 observations with missing values for
Ivol or SIC code. These observations are dropped because only complete observations could
be used in this research. It is important to check if by dropping the incomplete observations
of each year, there will be enough observations. If this would not be the case, this could
influence the results. Fortunately, as can be seen in Table 1, for all years enough observations
are still present. Therefore, it is assumed that dropping these incomplete observations will not
have major influence. Eventually, this means that from the 37,652 companies in the dataset
27,492 are used conducting the research. Table 2 shows the number of years of data for the
number companies.
16
Table 1: Table 2:
Number of observations for each specific year Years of data
Year Number of observations Years of data Number of firms

1998 14,205 1 1728
1999 14,422 2 2519
2000 14,513 3 2398
2001 14,030 4 1943
2002 13,905 5 1764
2003 13,673 6 1522
2004 13,920 7 1396
2005 14,084 8 1365
2006 14,110 9 1048
2007 14,420 10 1083
2008 14,344 11 1199
2009 13,934 12 974
2010 13,827 13 891
2011 13,924 14 852
2012 13,832 15 785
2013 13,456 16 649
2014 13,450 17 493
2015 13,358 18 589
2016 13,203 19 548
2017 12,856 20 3722
3.3 SIC code

As already mentioned in Chapters 3.1 and 3.2, the SIC code plays an important role in the
research. Without this code, the IPOs could not be linked with their competitors from the Ivol
data set. SIC codes are four digits numerical codes assigned by U.S. government to classify
businesses into an industry. These codes were created in 1937 and partly replaced by NAICS
code system in 1997. Despite the presence of the NAICS system, SIC codes are still used as
well. Therefore they are still useful for making connections between companies and industries
in this research.
The characteristic of the SIC code that makes it especially useful for Hypothesis 3 is that
companies can be grouped progressively into Industry (most specific), Industry group, Major
Group and Division (least specific). The way in which this works can best be explained by an
example which can be found below.
17
Example:
The company Rockworth PCL has SIC code 2521
Code between 2000-3900 -> Division: Manufacturing
First two digits with 25 -> Major Group: Furniture and Fixtures
First three digits 252 -> Industry Group: Office Furniture
Entire SIC code 2521 -> Industry: Wood Office Furniture
The least specific way of grouping companies by SIC code is grouping in Divisions. In total
there are ten different divisions in which all companies are grouped. These ten Divisions and
their corresponding SIC code range are given in Appendix A.
3.4 Final database

To make the data useful for research both files should be combined. For each Division, Major
group, Industry group and Industry the number of IPOs during a year can be retrieved from
the IPO data file. This information was added to the ivol data file where for each observation
the number of IPOs was given for the four different SIC code groupings.
Considering the IPOs, it can be seen that in total there are 737 different SIC codes from which
there are 174 that only have one IPO in the interval. The SIC code that occurred most often
is 7372 (Prepacked Software), which had 799 IPOs. In the complete dataset there are among
the 255,044 observations 859 different SIC codes from which 13 occur only once. SIC code
6020 (Commercial Banks) appears most often and has 21,011 observations. Appendix A shows
us for each of the ten Divisions the number of IPOs in the interval, the number of observations
in the complete data file and the total number of business establishments stated by the NAICS
association. The number of IPOs per Division depends among other things also from its size.
In divisions with a high number of companies, there are in general more IPOs. Other factors
that play a role in the number of IPOs per Division are social, economic and technical
developments.
To conduct a proper research more variables are needed therefore multiple firm characteristics
were added to the data for every observation. The WRDS website was used for getting these
firm characteristics, which are total assets, long-term debt, book value per share, number of
18
shares, market value, revenue, gross profit, EBIT and dividends. The characteristics that will
be used as variable in the models will be discussed in Chapter 4.
In Table 3 which can be found on page 20 the descriptive statistics of all variables are given.
It can be seen that for the Ivol there are some extreme outliers (an Ivol of 15,500,000 cannot
be explained). Therefore the decision is made to winsorize the Ivol. It is going to be winsorized
on both sides on a 1% level.
In Table 3 it can be seen that this winsorizing strongly influences the average value of the
Ivol since it decreases with almost 90% this means that in the 1% maximum values there
were extreme outliers that heavily that influenced the sample. Extreme values can also be
seen in the other variables, for example a minimum book value per share of minus $158,400.
The five control variables used in the regression models, which will be discussed in Chapter
4, are all winsorized on a 1% level. This decision is made to prevent extreme values to
influence the results wrongly.
3.5 Sentiment data

To answer hypothesis 5 about the market sentiment, a sentiment score for each year should
be determined. To get this score, the database on the website of Prof Wurgler was used. In
this data file two sentiment scores were calculated for each month. For this research the
sentiment score that does not exclude business cycle variation is used. The effect of this
variation is as important for this research as the other factors that influence the sentiment.
To calculate the sentiment score per year, the average score over twelve months is used.
19
Table 3: Descriptive statistics
Variables Mean SD Min P25 P50 P75 Max N

Ivol (before winsorizing) 196.51 31.54 0 1.68 3.58 8.53 15,000,000 255,044
Ivol (after winsorizing) 21.55 94.85 0.09 1.68 3.58 8.53 792.78 255,044
Number of IPOs per Division 39.74 40.87 0 11 31 51 250 255,044
Number of IPOs per Major group 10.89 22.01 0 1 4 14 224 255,044
Number of IPOs per Industry group 6.29 16.39 0 0 1 6 184 255,044
Number of IPOs per Industry 2.54 6.98 0 0 0 2 83 255,044
Total Assets (USD Billion) 9.33 87.48 0 0.03 0.23 1.36 3,770 158,064
Longterm Debt (USD Billion) 1.60 28.19 0 0 0.01 0.23 21.81 157,705
Bookvalue per share (USD) 38.42 2,783 -158,400 0.45 3.97 10.72 468,088 145,380
Outstanding shares in millions 122.06 1,780 0 9.40 26.00 69.12 695.26 172,735
Market value (USD Billion) 2.41 14.36 0 0.02 0.12 0.73 790.05 143.356
Dividends (USD Billions) 0.08 0.57 -0.66 0 0 0.01 85.42 156.783
Gross Profit (USD Billions) 0.81 4.09 -76.74 0 0.03 0.23 133.92 146.364
Revenue (USD Billions) 2.55 13.09 -15.01 0.01 0.10 0.70 479.96 157.329
Log (Market Value) 4.82 2.55 -9.21 3.11 4.78 6.59 13.58 143,356
Debt over Assets 0.33 12.74 0.00 0.00 0.07 0.26 3,287 157,073
ROTA -1.68 75.49 -23,957 -0.11 0.03 0.09 1,102 144,877
Market to Book ratio 5.80 958.44 -31,267 0.79 1.60 3.16 312,500 133,534
Loss dummy 0.06 0.24 0 0 0 0 1 255,044
20
4. Empirical model
In this chapter, the choices in the empirical model will be reviewed. Choices related to the
control variables and fixed effects are explained. Furthermore, problems that can occur during
the analyses are discussed, as well as ways to prevent them.
4.1 Fixed effects

The basic model has the Ivol as a dependent variable, which can only be predicted by the
number of IPOs (per Division, Major group, Industry group or Industry), which is the
independent variable. When only doing this basic regression, it can be seen in Table 4 Model
1 that the adjusted R-squared of the model is very low. The R-squared measures the part of
the variation of the dependent variable, explained by the independent variables. This means
that the measure shows the predictive power of a model. A very low R-squared means a poor
performing model.
The data are given over a period of 20 years (1998 to 2017). In these years, the stock market
has fluctuated heavily. For example, during the financial crisis, most stock performed badly,
while in other periods a lot of stocks were on their old-time highest level. To take this
differences between years into account, time fixed effects are included. Including a fixed effect
in a model is like adding a dummy variable for each year. Table 4 Model 2 demonstrates that
the adjusted R-squared improves after adding the time fixed effects. It is, however, still a low
value.
In total, the data concern 27,492 different companies. A big part of stock return can be
explained by characteristics of a specific company. For example, the brand name can also
influence the price of a specific stock. A company-specific effect tends to be stable over the
years. In the model company specific effects are included, which can be compared with adding
27,492 company dummies. It can be seen in Table 4 Model 3 that adding the firm fixed effects
to the model has made a big improvement to the R-squared. Therefore, it is decided to include
company fixed effects as well as year fixed effects in the model.
The improvement in the adjusted R-squared in Table 4 for the number of IPOs per Industry
is consistent with the findings for these same models, with the number of IPOs per Division,
Major group and Industry group. Appendix B presents the tables of these results.
21
Table 4: Regression for the number of IPOs per Industry without
control variables
Effect of the number of IPOs per Industry without control variables
Variables Model 1 Model 2 Model 3

-0.339*** -0.281*** 0.011
Number of IPOs per Industry
(-11.80) (-9.57) (0.28)
Time fixed effects No Yes Yes
Firm fixed effects No No Yes
22.415*** 22.266*** 21.572***
Constant
(61.21) (61.53) (215.31)
Number in sample 255,044 255,044 253,292
F-statistic 139.35 91.60 0.08
Prob > F 0.000 0.000 0.780
Adjusted R-squared 0.001 0.008 0.237
* significant on 10% level
** significant on 5% level
*** significant on 1% level
4.2 Control variables

In this subchapter, the model is expanded with firm related control variables, as in the last
chapter it was already concluded that time and firm fixed effects would be added to it. The
model that will be used, can be found in Equation 3.
= + !"# + $% + & + ' + ( (Equation 3)
In this equation )*, is the Idiosyncratic volatility. Moreover, , and $ are constants.
The variables in this model are !"# which is the number of IPOs and % are the control
variables. The year fixed effect is defined as & , the company-fixed effects is ' and the error
term is given as ( . The time identifier is t, i is the firm identifier and j identifies how the IPOs
are grouped.
In Equation 3 all the control variables together are written down as % . To select the control
variables, related papers are checked on the variables that were used. Most often these are
the logarithm of assets, the logarithm of market value, debt divided over assets, market to
book ratio, measure for company loss, return on equity and return on assets. Since assets
and market value are related, a lot of multicollinearity can occur in the model. To avoid this,
one of the two variables should be dropped. The decision is made to drop the logarithm of
assets and keep the logarithm of market value. However, since the logarithm of market value
and the logarithm of Assets are closely related, the latter would have given similar results.
22
The problem of multicollinearity can also occur between the variables return on equity and
return on assets, since they both measure the return, but scaled to a different level. The
decision was made to drop return on equity. Three reasons explain this choice: first of all,
there are double the number of observations for assets as there are for equity. A second
reason was that the return on assets was used in more papers. The third argument is that the
debt is also measured on assets and by measuring the return also over the assets, the
variables are more consistent. Table 5 below shows all control variables which are going to
be used in the final model. It contains the definition of each variable and the articles in which
it appears.
Table 5: Articles in which control variable was used in combination with Ivol
Variables Articles Definition

Drake, Myers J., Myers L. Stuart
Log (Market value) Logarithm (Market value)
M. (2014)
Ferreira and Laux (2007); Yook
(2006); Borde and Whyte (2003);
/012345 637
Debt over Assets Akhigbe, Johnston and Madura
809: 9;;3;
(2006); Hsu, Reed and Rocholl
(2010)
Mahshruwala, Rajgopal and Shevlin
(2006); Gleb and Zarowin (2002);
<94>3 ?9:@3
Market to Book ratio McGilvery, Faff and Pathan (2012);
A00> ?9:@3
M. (2014)
Dummy value which has
Loss dummy value 1 if company has loss;
M. (2014)
otherwise value 0
Gleb and Zarowin (2002); Chen,
Goldstein and Jiang (2007); Yook BAC8
ROTA
(2006); Hsu, Reed and Rocholl 809: 9;;3;
(2010)
4.3 Outliers, Heteroscedasticity, Collinearity and Endogeneity

When working with data, results can be influenced by connections under the surface and
problems with the dataset. For example, there can be found unusual data, caused by extreme
outliers. Heteroscedasticity and collinearity are other problems which can arise, whereas
endogeneity problems can occur in this research dataset.
In the dataset, some unusual data points were already discussed in Chapter 3.4. There was
also mentioned that the maximum value for Ivol in the data is 15,500,000. Furthermore, for
the variables debt over assets, market to book ratio and the logarithmic market value, a
23
negative minimum value was found. This is strange since debt, market value and book value
can never be negative. These outliers can affect the results of the research. To solve this
problem, all control variables and the Ivol are winsorized at 1% level. Then, it was checked if
there were still negative values for the three variables. Only for the variable market to book
ratio, there were found negative values. These 16,217 negative observations were dropped.
Heteroscedasticity can best be described as subpopulations in data that show mutual

differences in variabilities. This occurs when the standard errors of a variable over time are
non-constant. Heteroscedasticity is a major problem, when doing regression analysis since it
can invalidate the statistical tests of significance. To avoid this, clustering was used to get
robust standard errors, that account for heteroscedasticity across the different clusters. Fixed
effects for time and company are added to the model to avoid the effect of subpopulations
and therefore the occurrence of heteroscedasticity.
Collinearity is the phenomenon that occurs when two variables are measuring the same thing,
which will influence the results. Correlations and Variance Inflation Factor (VIF) tests are ways
to detect collinearity in the data. Appendix C shows the correlation matrix. It projects that the
correlation between the variables logarithm of market value and the logarithm of assets is
0.871, which is high. Also, the VIF factors show 4.62 for the variables logarithm of assets and
4.37 for logarithm of market value, which is high, compared with the VIF factors of other
variables, which are mostly between 1 and 2. When a VIF score is close to 5 or higher, there
is a big chance on collinearity. This together with the high correlation results was the reason
to drop the variable logarithm of assets. After this variable was dropped, the VIF score for
logarithm of market value only had a score of 1.16.
Endogeneity can be a big problem in this dataset. An endogenous variable is a variable for
which the value is determined by the model, while an exogenous variable is determined
outside the model. Endogeneity problems can best be described as the situation in which an
explanatory variable is highly correlated with the error term. The endogeneity problem is
expected, because IPOs do not seem to be exogenous events. IPOs do not arise out of
nothing, but are related with Macroeconomic Factors. Angeline and Foglia (2018) discuss this
topic and mention in particular the Macro Economic factors as a reason for the endogeneity.
Furthermore, Geertsema and Lu (2019) take the view that especially the demand for the
shares is not exogenous because it is regulated by the IPO price. Braun and Larrain (2009)
notice the effect that an IPO can signal the alleviation of financial constraints for an entire set
of firms in a subgroup, which would affect all of them directly. Spiegel and Tookes (2018) try
to adapt for endogenous IPO decisions in their model by starting at the IPO date and,
24
therefore, they choose to go public as given. The common sources of endogeneity are omitted
variables, measurement errors and simultaneity. Gormley and Matsa (2014) describe this
problem as follows: “Demaining the dependent variable with respect to groups suffers an
omitted variable problem by failing to control for how the mean of the independent variables
affects the demeaned dependent variable.” But properly, an easier way to define them is as
variables that are not included in a model, but are correlated with both the dependent and
one or more of the independent variables. Measurement error is the situation in which one of
the independent variables does not provide a perfect measure, because it is contaminated
with noise. Simultaneity is known as the situation in which an explanatory variable is jointly
determined with the dependent variable. So, the explanatory variable will influence both.
For this paper, simultaneity bias between Ivol and the number of IPOs can occur. The purpose
of this research is to determine if the number of IPOs influence the Ivol of competitors.
However, it cannot be ruled out that the Ivol of competitors will also influence the number of
IPOs. When the Ivol of competitors is higher the risk on the market is generally higher and
this could influence the frims’ decision to go to the stock market.
In this paper, it is also possible that omitted variables will occur. Some factors are very likely
to correlate with Ivol of firms as well as with the number of IPOs in a sector. For instance, the
demand in a specific Industry, but also the demand for shares in a specific Industry. During
the dot-com bubble, for example the demand for shares of internet companies was high. This
demand for shares can be triggered by new technology developments in a sector, which also
increases the number of IPOs, but also influences the Ivol of current businesses in this sector.
Other factors are the rise of new markets and decline of old markets. For example, the number
of IPOs in the online sales increases and also the Ivol of existing companies is influenced by
the growing market. For declining markets, however, there are fewer IPOs and also the Ivol
of existing companies is influenced by the decreasing market and interest of investors in that
Industry.
Exogenous market-wide factors do not influence the number of IPOs and the Ivol of existing
companies since they influence the whole economic market and are therefore not company
specific. However, there are also market-wide factors that only hurt a part of all companies.
Examples are the political situation in and between countries, changes in law, devaluation of
currencies, oil crises or shortness in specific commodities. These factors influence the Ivol of
companies in the market as well as the number of IPOs. For example, a country can make
new laws that are negative for firms in a specific Industry located in that country. This could
25
have negative effects for the Ivol of companies in that country and companies with IPO plans
may determine to postpone them.
When endogeneity is present in scientific papers this is a real problem, the endogeneity
problem confuses the interpretation of the coefficients. Holding other variables constant, a
marginal effect of variable X on Y cannot be measured, if these other variables are not in the
model. This can result in biased coefficients since the not-included variables are now the error
term, that will have covariance with variable X, if the not-included variables have a covariance
with this variable. This is also pointed out by Antonakis, Bendahan, Jacquart and Lalive (2014).
However, an endogeneity bias can be addressed by three different methods: Instrumental
Variables, Difference-in-Differences and Regression Discontinuity Design. The method of
Instrumental Variable can best be described as adding a new variable, which is correlated
with the endogenous variable, but uncorrelated with the error term. Difference-in-Differences
is a method where the sample is randomly assigned between two groups (treatment and
control group) to sharp changes in economic or institutional environments. Regression
Discontinuity Design is a method that also works with two different groups. However,
differently from the Difference-in-Difference method, the groups are not randomly assigned.
26
5. Results
In this chapter, the results of the different tests will be revealed. With these results, the
research question will be discussed. This chapter is divided into five subchapters which are
related to the different hypotheses. In the first subchapter, the general research question is
discussed. The second chapter focuses on the differences between years. The third chapter
investigates differences between big and small companies.
5.1 The number of IPOs and one additional IPO

To build the model, first the effect of the number of IPOs per Division on Ivol is checked with
a model that only includes these two factors. Then a new regression is done, but this time the
control variables which are picked in Chapter 4 are included in the model. In the third
regression year, fixed effects are included, while in the final regression model also firm fixed
effects are added. The results of these four different models are shown in Table 6. As can be
seen in most steps, the adjusted R-squared increases, which means that the predictive power
of the model grows. It is noticeable that the adjusted R-squared does not change when adding
the year fixed effects in the model. There are also minor changes in the variable values. From
that, it can be concluded that the year fixed effects in this model are rather small.
Nevertheless, the decision is made to keep them in the model since it could only improve the
model, even if it is only slightly. In Appendix D the same models for the number of IPOs per
Major group, Industry group and Industry can be found. These models show the same results
concerning the adjusted R-squared. Another observation regarding the models in Table 6 and
in Appendix D is that the factor for the number of IPOs is negative when the firm fixed effects
are not included, while it is positive when they are. This can be explained by endogeneity bias
because the firm fixed effects have a large influence on the Ivol. When they are not included,
there could be an omitted variable bias.
27
Table 6: Regression number of IPOs per Industry with and without control variables and fixed effects
Regression number of IPOs per Industry
Variables Model 1 Model 2 Model 3 Model 4

-0.339*** 0.008 0.014 0.061***
(-11.80) (0.43) (0.72) (2.76)
-2.277*** -2.334*** -2.571***
Log (Market value)
(-26.40) (-26.08) (-9.91)
-1.438** -1.480** -6.051***
Debt over assets
(-2.17) (-2.22) (-4.43)
-2.520*** -2.421*** 0.205
ROTA
(-3.51) (-3.36) (0.23)
0.366*** 0.366*** 0.231***
Market to Book ratio
(9.01) (9.00) (4.70)
0.194 0.060 -0.010
Loss dummy
(0.33) (0.10) (-0.01)
Control variables No Yes Yes Yes
Time fixed effects No No Yes Yes
Firm fixed effects No No No Yes
22.415*** 18.007*** 18.314*** 20.682***
Constant
(61.21) (32.93) (32.41) (14.92)
Number in sample 255,044 111,771 111,771 109,349
F-statistic 139.35 184.50 178.58 22.27
Prob > F 0.000 0.000 0.000 0.000
Adjusted R-squared 0.001 0.031 0.032 0.17
* significant on 10% level, ** significant on 5% level, *** significant on 1% level
When considering the other variables in the final models in Table 6, it can be seen that there
is a negative significant at 1% level effect for the logarithm of Market value and for Debt over
assets, while a positive significant at 1% level effect is found for the Market to Book ratio. No
significant effect is found for the dummy of loss and the ROTA. Bigger value of the company
will clearly negatively influence the Ivol: when the log (Market value) increases with 1, the
Ivol will decrease with 2.571. Also, higher debt will have a negative effect on the Ivol, if debt
over Assetswill increase with value 1, the Ivol will decrease with 6.051. When the Market to
Book ratio is higher, the risk factor grows. When this ratio increases with a value of 1, the Ivol
will increase with 0.231. A reason for this could be the overpriced stocks.
Table 7 shows four models. All of them have control variables, year fixed effects and company-
fixed effects. The difference between the models is how the number of IPOs is counted. For
the first model, the number of IPOs is counted per Division, while for the second model the
number of IPOs is counted per Major group. In Model 3 and 4, the number of IPOs is counted
per Industry group and per Industry. It can be seen that there is no significant effect for the
28
number of IPOs per Division on the Ivol. There is however a significant effect on the 5% level
for the number of IPOs per Major group and one on the 1% level for IPOs per Industry and
Industry group. This means that an additional IPO per Major group will increase the Ivol with
0.018, while an additional IPO per Industry will enlarge it with 0.027. The biggest effect is
found for an additional IPO per Industry, which increases the Ivol with 0.061. The result is
bigger for the effect measured for IPOs per Industry group compared to IPOs per Major group,
and there is even a bigger and more significant effect for IPOs per Industry. This is consistent
with Hypothesis 3 according to which the effect of the number of IPOs on Ivol is more
significant when the IPOs are stronger related to the firm's core business.
Table 7: Regression overview with fixed effects and control variables
Regression overview

0.005
Number of IPOs per Division
(0.94)
0.018**
Number of IPOs per Major group
(2.40)
Number of IPOs per Industry 0.027**
group (2.51)
0.061***
(2.76)
-2.547*** -2.581*** -2.585*** -2.571***
Log (Market value)
(-9.84) (-9.89) (-9.92) (-9.91)
-6.071*** -6.040*** -6.026*** -6.051***
Debt over assets
(-4.44) (-4.43) (-4.42) (-4.43)
-0.208 0.209 0.205 0.205
ROTA
(0.24) (0.24) (0.23) (0.23)
0.232*** 0.231*** 0.230*** 0.231***
(4.72) (4.69) (4.68) (4.70)
-0.007 -0.023 -0.024 -0.010
Loss dummy
(-0.01) (-0.03) (-0.03) (-0.01)
Control variables Yes Yes Yes Yes
Time fixed effects Yes Yes Yes Yes
Firm fixed effects Yes Yes Yes Yes
20.483*** 20.679*** 20.731*** 20.682***
Constant
(14.96) (14.91) (14.91) (14.92)
Number in sample 109,349 109,349 109,349 109,349
F-statistic 22.16 22.27 22.34 22.27
Prob > F 0.000 0.000 0.000 0.000
29
Another interesting way to check the effect of the number of IPOs on Ivol is by examining the
effect of an additional IPO. Three different methods are used to measure this. The first method
is doing a regression with sixteen dummies, where the first fifteen are dummies for the
observations which have one, two to fifteen competitive IPOs. The last dummy is for all
observations with more than fifteen competitive IPOs. The second method uses eleven
dummies. The first dummy is for all observations which have 1 to 5 competitive IPOs, the
second one is for observations which have 6 to 10 competitive IPOs. This continues till the
tenth dummy which includes observations with between 45 and 50 competitive IPOs. The last
dummy is the one that contains all observations with more than 50 competitive IPOs. The
third and last method consists of ten dummies. These are sorted in different groups of 25 for
the number of competitive IPOs. The first dummy is for all observations which have 1 to 25
rival IPOs, while the last has all observations with between 225 and 250 competitive IPOs.
The results of these different methods can be found in Appendix E.1 to E.3.
When checking out the tables in Appendix E, it is found that for the number of IPOs per
Division almost no significant results are found. Therefore, no conclusions can be drawn from
the differences. For the number of IPOs per Major group, the first two methods do not show
a lot of significant effects. However, it is found that the dummy with more than 50 IPOs shows
a significant effect of 3.951 on the Ivol. This means, in general, that when a firm has more
than 50 competitive IPOs in the same Major group in one year, the Ivol will increase with
3.951, compared to a situation with zero IPOs. For the third method, significant effects are
found for dummy 26 to 50, dummy 51 to 75, dummy 76 to 100 and dummy 201 to 225. It is
expected that the effect would increase when there are more competitive IPOs. This is
generally true. However, the dummy 51 to 75 has an effect of 3.095 on the Ivol, which is
bigger than the dummy 75 to 100 that has an effect of 2.936 on the Ivol. This conflicts with
the expectations. For a number of IPOs per Industry group, no significant values are found
for the first method. Furthermore, for the second method, only significant results are found
for dummy 31-35 IPOs and the dummy with more than 50 IPOs, which shows a positive effect
of 4.448. For the third method, the dummy 26 to 50 (effect of 3.838), dummy 51 to 75 (effect
of 4.578) and dummy 176 to 200 (effect of 8.126) present significant values. So this suggests
that the effects are larger when the number of related IPOs is bigger. However, this is not
true for dummy 76 to 100, which does not show a significant result. Finally, for the number
of IPOs per Industry group, the first method gives too few significant results to draw
conclusions on. The second method shows a significant effect for only four of the eleven
dummies. Just like for the number of IPOs per Major group and Industry group, a significant
30
result is found for the dummy with more than 50 IPOs: the effect found is 7.338. The third
method shows a significant effect for dummy 26 to 50 (an effect of 4.096 on Ivol), dummy
51 to 75 (an effect of 4.225 on Ivol) and dummy 76 to 100 (an effect of 9.610 on Ivol). These
findings suggest that the effect increases when the number of competitive IPOs is higher.
To conclude, it is found that more significant results are found for a higher number of IPOs
per subgroup. Furthermore, the findings indicate that in general the effect of a subgroup on
the Ivol is larger when the number of IPOs in this subgroup is bigger. However, the findings
are not strong enough to conclude which IPO increase makes the biggest difference on the
effect on the Ivol. For example, there is no evidence found that the increase in the effect is
larger when comparing the difference between one and two IPOs than the difference between
14 and 15 IPOs.
5.2 Year specific results

An interesting sub-question is if there are differences between the different years, especially
the later years. In Figure 2 the beta coefficient for a number of IPOs per Division, Major group,
Industry group and Industry is given for each specific year. Since the data are now split into
years, the year fixed effects are no longer included. Furthermore, since for a specific year only
one observation of a company is given, the company-fixed effect cannot be included in the
regression. This makes the adjusted R-squared for the different regressions all around 0.05,
which is rather low.
When checking it out, it can be seen in Figure 2 and Table 8 that the effect of the number of
IPOs on the Ivol (the β-coefficient) for most years is negative. Another outstanding
observation is that the fluctuations in the graph for the number of IPOs for Industry and
Industry group are bigger than for the number of IPOs per Division and Major group. It
supports the acceptance of Hypothesis 3, that the effect is stronger when IPOs are more
related to the company’s core business. However, given that only a few years show some
significant results, as can be seen in Table 8, the contribution to Hypothesis 3 is only small.
Since the effects are only significant for a few years, no conclusions can be drawn about
differences between years. Therefore, no clear differences are found and Hypothesis 2 that
states that the effect is bigger in years with fewer IPOs, is rejected. What can be seen in the
results is that there is a large negative effect measured in 2008. This could be explained by
the financial crisis. In 2008 the crisis strongly affects the economy, the number of bankruptcies
is high in this year. So it is possible that the number of bankruptcies in the same Industry
group or Industry also influences the results. Furthermore, it can be seen in figure 1 that the
31
total number of IPOs with only 32 IPOs is the lowest in 2008. This means that there are only
a few Industry groups and Industries that have at least one IPO. The few industries that have
IPOs in 2008 may also show negative results in different years. A third reason that can explain
these results is, that because of the crisis, investors have less confidence in IPOs and therefore
have more interest in shares, which are already traded for a long time on the stock market.
β-coefficient for Number of IPOs

0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
-1.4
-1.6
Division Major group Industry group Industry
Figure 2: Beta coefficient per year for four different models
32
Table 8: Beta coefficient per year for four different models
Major Industry
Year Division Industry
group group
1998 -0.028** -0.011 -0.013 -0.024
1999 -0.012* 0.002 0.007 -0.002
2000 -0.008 0.001 0.010 0.034
2001 -0.074 -0.077 -0.010 -0.389**
2002 -0.129* -0.060 -0.021 0.154
2003 -0.089 -0.223 -0.020 -0.281
2004 -0.007 0.082 0.114 0.216
2005 -0.032** 0.040 0.026 0.239
2006 0.008 -0.015 -0.036 -0.050
2007 -0.010 -0.042* -0.060 -0.009
2008 0.004 -0.256 -1.151** -1.410***
2009 -0.124 -0.417* -0.400 -0.433
2010 -0.071** -0.056 -0.036 0.0363
2011 -0.065** -0.129** -0.104 -0.008
2012 -0.005 -0.016 0.007 0.121
2013 0.013 0.112** 0.195** 0.169
2014 -0.008 0.034 0.066 0.048
2015 -0.042* -0.062 -0.067 -0.068
2016 -0.096** -0.182* -0.199 -0.580***
2017 -0.080** -0.138* -0.116 -0.231
33
5.3 Data split on variables
In this chapter, splits are made for firm characteristics. For each of these firm characteristics,
the data are split into two parts: lower side (the 50% lowest values) and upper side (the 50%
highest values). For these separate parts, a regression is done and the results are compared
to see if there are important differences between the lower and upper side. This subchapter
is divided into two parts. The first part is related to company size which is related to Hypothesis
4. The second part uses splits on different firm characteristics used by investors, this part is
not related to a hypothesis. The goal of this part is to gain some insights in the way firm
performance influences the effect of the number of IPOs on the Ivol. The Tables 9 to 14 all
show results from different splits. These tables are simplified. In each table the result of eight
different regressions are shown. However, only the effect of the number of IPOs on the Ivol
is projected. For each regression in all these models, the fixed effects and control variables
are included in the regression.
Size related split
The reasons to determine the effect of size is that IPOs are in general smaller than companies
that are already present in the stock market. It is therefore expected that the effect of an IPO
is higher for companies which are smaller, compared to bigger firms that have a size that is
multiple times the size of the IPO. As a measure for company size, the value of the Total
Assets is used. To check for robustness, also the results for Market value and Revenue as size
indicator are shown.
The average value of the Total Assets is 9.3 USD billion, while the median and split point is at
226 USD million. In total, there are 158,064 observations. Table 9 presents the results for the
regressions of the Number of IPOs per Division, Major group, Industry group and Industry for
both the lower and upper side of the split, made on Total Asset value. It can be seen that
there is a significant effect at the 1% level for the number of IPOs per Major group, Industry
group and Industry at the lower side. On the upper side, there is a significant effect at the
1% level for the number of IPOs per Division, Major group, Industry group and Industry.
When comparing the results, it can be seen that the effect lower side is almost three times as
big as the effect of upper side for the number of IPOs per Major group, Industry group and
Industry. This indicates that the effect of an IPO is in general almost three times as strong for
a small company in comparison to a larger company. For example, for the Number of IPOs
per Industry the effect on Ivol of the upper side is 0.048, while for the lower side the effect
is 0.146. These findings are in agreement with Hypothesis 4.
34
Table 9: The number of IPOs effect on Ivol for Total Asset split
Lower Upper
side Side
N. IPOs per Division 0.006 0.010***
N. IPOs per Major group 0.039*** 0.016***
N. IPOs Industry group 0.057*** 0.023***
N. IPOs Industry 0.146*** 0.048***
Table 10 and 11 show the regression results of the splits for Market value and Revenue are
shown. They can be used as a robustness check of the results of the split of Total Assets.
Since all three of them are measuring size, the results should correspond. Results on the 5%
and 1% level are found. It can be seen that for both Market value as Equity the effect of the
number of IPOs on the Ivol is around four times bigger than the effect of the upper side. For
the number of IPOs per Industry, this effect is even five times bigger. For Revenue, the upper
side gives an effect of 0.030, while the lower side shows an effect of 0.162. The results for
Market value demonstrate that the effect for upper side is 0.027, while the effect for the lower
side is 0.156. This means that the results are also in agreement with Hypothesis 4.
Table 10: The number of IPOs effect on Ivol for Market value split
Lower Upper
side Side
N. IPOs per Division 0.007 0.006**
N. IPOs per Major group 0.042*** 0.008**
N. IPOs Industry 0.156*** 0.027**
Table 11: The number of IPOs effect on Ivol for Revenue
Lower Upper
side Side
N. IPOs per Division 0.007 0.006**
N. IPOs Industry 0.162*** 0.030***
35
Split in firm performance indicators
Firm performance indicators are important for investors to compare stock which each other.
In this part, a split will be made for the following variables: Profit over Assets, Dividend over
Assets and Return on Assets. These three can be seen as indicators for performance since
high returns, profits and dividends attract investors. This part is not related to one of the
hypothesis. It has the purpose to get some additional insights in the general research
question.
Table 12 gives the regression results for the split for Profit over Assets. They show that there
is a significant effect on the 10% level for the number of IPOs per Industry group and a
significant effect at the 5% level for the number of IPOs per Major group and per Industry for
the lower side. For the upper side, a significant effect on the 5% level is found for the number
of IPOs per Division and there is a significant effect on the 1% for the number of IPOs per
Major group, Industry group and Industry. When comparing the results, it can be seen that
the effect for the number of IPOs on the Ivol is twice as big as for the upper side. When
checking the results of the Number of IPOs per Industry, an effect of 0.078 is found for the
upper side, while the lower side shows an effect of 0.154. This means that for companies with
lower Profit over Assets, the effect is stronger. Since profit is related to company performance,
this indicates that the effect of the number of IPOs on the Ivol is bigger for weaker performing
firms. However, it should be taken into account that the significance of the results is rather
low.
Table 12: The number of IPOs effect on Ivol for Profit over Asset split
Lower Upper
side Side
N. IPOs per Division -0.003 0.012**
N. IPOs per Major group 0.050** 0.018***
N. IPOs Industry group 0.068* 0.028***
N. IPOs Industry 0.154** 0.078***
Dividend over Assets is a weak performance indicator since there are companies that make
high profits which do not pay dividends and companies that make a loss and still pay dividends.
Table 13 presents the regression results of the split for Dividend over Assets. The splitting
36
point is zero, which means that the lower side consists out of the companies without dividend.
The results show significant effects on the 1% level for the number of IPOs per Major group,
Industry group and Industry for the zero dividend part of the split. For the upper side, only
the number of IPOs per Division shows a significant result on the 10% level. Therefore, lower
and upper side cannot be compared and no differences can be noticed between the two parts.
Table 13: The number of IPOs effect on Ivol for Dividend over Assets split
Lower Upper
side Side
N. IPOs per Division 0.002 0.011*
N. IPOs per Major group 0.033*** 0.007
N. IPOs Industry group 0.049*** 0.017
N. IPOs Industry 0.123*** -0.021
Table 14 gives the results of the Return over Total Assets. For the lower side, the number of
IPOs per Major group, Industry group and Industry show significant effects on the 1% level.
For the upper level, a significant effect on the 1% level is found as well for the number of
IPOs per Industry group and per Industry, but for the number of IPOs per Major group a
significant effect on the 5% level appears. When comparing the lower and upper side, it can
be seen that the effects for the number of IPOs on Ivol are around four times bigger for the
lower side compared to the upper side. The results show that for the number of IPOs per
Industry the effect on Ivol for the upper side is 0.040, while an effect of 0.159 is found for
the lower side. This means that companies with a lower Return over Assets give a bigger
effect for the number of IPOs on the Ivol. Since return is related to company performance,
this suggests that the effect of an IPO is stronger for weaker performing companies.
Table 14: The number of IPOs effect on Ivol for Return on Total Assets split
Lower Upper
side Side
N. IPOs per Division 0.009 0.005
N. IPOs Industry 0.159*** 0.040***
37
To conclude, for the splits on Assets, Market value and Revenue, results are found that indicate
the size of a company plays a role in the effect that the IPO has on the Ivol, which is consistent
with Hypothesis 4. From the splits for Profit over Assets and Return over Assets, the suggestion
could be made that company performance can influence the effect of an IPO on the Ivol.
Dividend over Assets, however, does not give a significant result between zero dividend and
dividend.
5.4 Sentiment Score

An interesting side step is to investigate the effect of sentiment index by Prof. Wurgler. As
stated before in Hypothesis 5, the decision is made to interact the Sentiment indicator with
the number of IPOs for each Division, Major group, Industry group and Industry. Furthermore,
also a split on the score of sentiment is used to divide the sample in low and high sentiment.
The Sentiment indicator is retrieved from the website of professor Wurgler. The Sentiment
Score per year is calculated by using the average monthly sentiment score over one year.
Professor Wurgler calculates two different sentiment Scores in his research. The one in which
the business cycle variation is not excluded, is used for this research.
When considering the regression results in Table 15, it can be seen that for the Sentiment
Score interacted with the number of IPOs per Division and per Industry, there is a positive
effect, while this effect is negative for Major group and Industry group. However, none of
these four results are significant. Therefore, it can be concluded that no effect of the sentiment
index on the Ivol is found, when it is interacted with the number of IPOs. This conclusion does
not support Hypothesis 5, which states that the effect of the number of IPOs increases when
taking into account the sentiment.
The difference between high and low sentiment values can be found in Table 16, where a
split is made. When checking these results, it can be noticed that no effect is found for the
number of IPOs per Division and Industry, while a low to medium positive significant effect is
noted for the number of IPOs per Major group and Industry group. The effect for these values
turns out to be stronger when the sentiment is low. For the number of IPOs per Major group,
the effect on Ivol is 0.014 for the upper side of sentiment scores, while for the lower side an
effect of 0.071 is found. The same result is found for the number of IPOs per Industry group,
where the effect on Ivol for the lower side is 0.024, while the effect of the upper side is 0.097.
These findings contradict with Hypothesis 5 according to which the effects of the number of
IPOs increase, when taking into account the sentiment of the market, where a higher
38
sentiment should result in a higher effect for the number of IPOs on the Ivol. However, the
actual findings show the opposite effect.
Eventually, it is concluded that Hypothesis 5, stating that including sentiment will increase the
effect of the number of IPOs on the Ivol, is rejected since no significant result is found for
interacting the number of IPOs with the sentiment factor and a reverse effect is noted, when
comparing high to low sentiment scores. So sentiment does not positively influence the effect
of the number of IPOs on Ivol.
Table 15: Regression with sentiment interacted with the number of IPOs
Regression Sentiment Score interacted with the number of IPOs

Sentiment interacted with the number of 0.009
IPOs per Division (1.64)
Sentiment interacted with the number of -0.002
IPOs per Major group (-0.23)
Sentiment interacted with the number of -0.005
IPOs per Industry group (-0.41)
Sentiment interacted with the number of 0.033
IPOs per Industry (1.29)
-2.543*** -2.533*** -2.533*** -2.540***
Log (Market value)
(-9.84) (-9.83) (-9.82) (-9.86)
-6.089*** -6.088*** -6.091*** -6.075***
Debt over assets
(-4.45) (-4.45) (-4.46) (-4.45)
-0.213 0.208 0.206 0.215
ROTA
(0.24) (0.24) (0.24) (0.25)
0.233*** 0.233*** 0.233*** 0.233***
(4.75) (4.74) (4.75) (4.76)
-0.004 -0.002 -0.001 -0.009
Loss dummy
(-0.00) (-0.00) (-0.00) (-0.01)
20.626*** 20.635*** 20.634*** 20.652***
Constant
(14.93) (14.91) (14.90) (14.91)
Number in sample 109,349 109,349 109,349 109,349
F-statistic 22.14 22.50 22.52 22.07

Prob > F 0.000 0.000 0.000 0.000
39
Table 16: Regression high and low Sentiment Scores
Regression making difference between high and low Sentiment Score
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

0.025* 0.002
(1.77) (0.40)
0.071** 0.014*
(2.24) (1.81)
Number of IPOs per Industry 0.097** 0.024**
group (2.38) (2.15)
0.100 0.040
(1.52) (1.57)
-3.015*** -2.410*** -3.016*** -2.462*** -3.014*** -2.477*** -3.003*** -2.442***
Log (Market value)
(-6.16) (-7.33) (-6.15) (-7.44) (-6.16) (-7.49) (-6.13) (-7.40)
-5.273** -5.517*** -5.340** -5.475*** -5.364** -5.444*** -5.302** -5.487***
Debt over assets
(-2.13) (-3.45) (-2.16) (-3.43) (-2.17) (-3.42) (-2.14) (-3.43)
-1.832 2.434*** -1.827 2.434*** -1.827 2.427*** -1.827 2.428***
ROTA
(-1.13) (3.19) (-1.13) (3.19) (-1.13) (3.18) (-1.13) (3.18)
0.173** 0.250*** 0.174** 0.247*** 0.174** 0.246*** 0.174** 0.248***
(2.18) (3.92) (2.19) (3.87) (2.19) (3.86) (2.19) (3.90)
-0.506 0.812 -0.492 0.787 -0.474 0.780 -0.493 0.803
Loss dummy
(-0.35) (0.68) (-0.34) (0.66) (-0.33) (0.65) (-0.34) (0.67)
23.057*** 18.922*** 23.380*** 19.101*** 23.488*** 19.182*** 23.628*** 19.083***
Constant
(8.11) (11.57) (8.32) (11.37) (8.35) (11.40) (8.41) (11.37)
Sentiment score Low High Low High Low High Low High
Control variables Yes Yes Yes Yes Yes Yes Yes Yes
Time fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Number in sample 49,428 56,276 49,428 56,276 49,428 56,276 49,428 56,276
F-statistic 8.56 12.72 8.57 12.92 8.83 13.07 7.96 12.76
Prob > F 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Adjusted R-squared 0.160 0.162 0.160 0.162 0.160 0.162 0.160 0.162
40
5.5 Logarithmic Models
So far, it is assumed that there is a linear relationship between the number of IPOs and the
Ivol, given that the regressions use level-level models. However, there may be a non-linear
relationship. Therefore, in this part three possible different models are discussed to check for
robustness: the Level-Log model, the Log-Level model and the Log-Log model.
Level-Log model
For the level-log structure, the model is changed. It is constructed out of a regression of the
logarithm of the number of IPOs. Furthermore, the year and firm fixed effects are added just
like the control variables: Logarithm of Market value, Debt over assets, ROTA, Market to Book
ratio and a loss dummy. So the equation of this model would be the same as Equation 3 with
the only difference that is changed into log( ).
When checking out the results in Table 17, it can be seen that control variables Logarithm of
Market value, Debt over assets and Market to Book ratio give a significant effect on the 1%
level for all four regressions (log (number of IPOs per Division), log (number of IPOs per Major
group), log (number of IPOs per Industry group) and log (number of IPOs per Industry). The
ROTA and the loss dummy, however, do not show any significance for the four models. The
log number of IPOs per Division does not give a significant result, while the log number of
IPOs per Major group, Industry group and Industry show a significant result on the 1% level.
The effect found for the number of IPOs per Industry group is larger than the effect found
per Industry, which differs from the result of the level-level model of Chapter 5.1. It can also
be seen that the adjusted R-squared of the level-log model is the same as that of the level-
level model.
The economic interpretation of these results is that an 1% increase in the number of IPOs per
Major group will lead to an increase of the Ivol with 0.00513. For an 1% increase in the
number of IPOs per Industry group, the Ivol will grow with 0.00714, while an 1% increase in
the number of IPOs per Industry will lead to an increase of 0.00542 on the Ivol.
41
Table 17: Regression Level-Log model

0.212
Log (Number of IPOs per Division)
(0.63)
0.513***
Log (Number of IPOs per Major group)
(2.61)
0.714***
Log (Number of IPOs per Industry group)
(3.26)
0.542**
Log (Number of IPOs per Industry)
(2.42)
-2.543*** -2.572*** -2.584*** -2.564***
Log (Market value)
(-9.82) (-9.89) (-9.94) (-9.89)
-6.079*** -6.063*** -6.042*** -6.077***
Debt over assets
(-4.45) (-4.44) (-4.42) (-4.45)
0.211 0.211 0.209 0.208
ROTA
(0.24) (0.24) (0.24) (0.24)
0.233*** 0.232*** 0.232*** 0.232***
(4.75) (4.73) (4.72) (4.73)
-0.002 -0.003 -0.012 -0.006
Loss dummy
(0.00) (0.00) (-0.01) (-0.01)
19.995*** 20.023*** 20.197*** 20.479***
Constant
(12.41) (14.76) (14.79) (14.90)
Number in sample 109,349 109,349 109,349 109,349
F-statistic 22.06 22.36 22.48 22.14
Prob > F 0.000 0.000 0.000 0.000
Log-Level model
The log-level new model is created by making a regression of the number of IPOs on the
logarithm of the Ivol. Also to this model, the year and firm fixed effects are added, just like
the control variables: Logarithm of Market value, Debt over assets, ROTA, Market to Book
ratio and a loss dummy. So the equation of this model would be the same as Equation 3 with
the only difference that is changed into log( ).
When checking out the results of the regression in Table 18, it can be seen that the control
variables Logarithm of Market value and Market to Book ratio show significant effects on the
1% level for all four regressions. Furthermore, the control variables ROTA and the loss dummy
give a significant effect on the 1% level for the regression with the number of IPOs per Division
and per Industry, while it shows a 5% significant level for the regression with the number of
42
IPOs per Major group and Industry group. The effect of the number of IPOs per Division,
Major group, Industry group and Industry all demonstrate a positive significant effect on the
1% level on the logarithm value of Ivol. The effect increases when the IPOs are more related
to business. This agrees with the findings in the level-level models. When checking out the
adjusted R-squared, it can be found that the 0.668 of this model is way higher than the 0.170
of the level-level models.
The economic interpretation of these results is that for one extra IPO per Division, the Ivol
will increase with 0.0639%, while for an additional IPO in the Major group the Ivol will grow
with 0.146%. Furthermore, an extra IPO in the Industry group will lead to an increase of
0.201% in Ivol. Finally, one IPO extra in an Industry will result in an increase in Ivol of 0.458%.
Table 18: Regression Log-Level model

0.001***
(9.04)
0.001***
(14.49)
Number of IPOs per Industry 0.002***
group (15.09)
0.005***
(14.08)
-0.179*** -0.182*** -0.182*** -0.181***
Log (Market value)
(-49.03) (-49.39) (-49.45) (-49.27)
-0.063*** -0.061** -0.060** -0.062***
Debt over assets
(-2.64) (-2.57) (-2.54) (-2.61)
0.000 0.000 0.000 0.000
ROTA
(0.04) (0.05) (0.01) (0.01)
0.007*** 0.007*** 0.007*** 0.007***
(14.72) (14.55) (14.52) (14.60)
0.030*** 0.028** 0.028** 0.029***
Loss dummy
(2.63) (2.53) (2.54) (2.62)
2.189*** 2.213*** 2.216*** 2.213***
Constant
(112.92) (114.30) (114.31) (114.25)
Number in sample 109,349 109,349 109,349 109,349
F-statistic 439.22 447.32 451.26 444.72
Prob > F 0.000 0.000 0.000 0.000
43
Log-Log model
The log-log new model is created by making a regression of the logarithm of the number of
IPOs on the logarithm of the Ivol. As in the other models, the year and firm fixed effects are
added just like the control variables: Logarithm of Market value, Debt over assets, ROTA,
Market to Book ratio and a loss dummy. So the equation of this model would be the same as
Equation 3 with the two differences that is changed into log( ) and !"# is
changed into log( !"# ).
When checking out the results in Table 19, it can be seen that the control variables Logarithm
of Market value, Debt over assets, Market to Book ratio and the dummy loss are significant
on the 1% level for all four different regressions. However, for the ROTA no significant effect
is found for all four regressions. It can be noticed that the log number of IPOs per Division,
Major group, Industry group and Industry all show a positive significant effect on the 1%
level. However, it could be seen that the effect found for the log number of IPOs per Industry
group is slightly higher than that of the number of IPOs per Industry. This contradicts with
the findings in the level-level model. Furthermore, it can be found that the adjusted R-squared
is 0.667, which is way higher than the adjusted R-squared of 0.170 of the level-level models.
The economic interpretation of the results can be described as follows: a 1% growth in the
number of IPOs per Division will lead to an increase in Ivol of 0.0192%. In the same way a
1% growth of IPOs per Major group will let increase the Ivol with 0.0339%. Furthermore, a
1% growth of the number of IPOs per Industry group will result in an increase of 0.0466%
in Ivol. Finally, a 1% growth of the number of IPOs per Industry will produce an increase in
Ivol of 0.0442%.
44
Table 19: Regression Log-Log model

0.019***
Log (Number of IPOs per Division)
(3.65)
0.034***
Log (Number of IPOs per Major group)
(10.59)
0.047***
Log (Number of IPOs per Industry group)
(13.95)
0.044***
Log (Number of IPOs per Industry)
(12.08)
-0.179*** -0.180*** -0.181*** -0.180***
Log (Market value)
(-48.80) (-49.13) (-49.36) (-49.17)
-0.064*** -0.063*** -0.062*** -0.064***
Debt over assets
(-2.69) (-2.66) (-2.60) (-2.69)
0.001 0.001 0.000 0.000
ROTA
(0.07) (0.06) (0.05) (0.04)
0.007*** 0.007*** 0.007*** 0.007***
(14.89) (14.80) (14.75) (14.79)
0.030*** 0.030*** 0.029*** 0.030***
Loss dummy
(2.68) (2.67) (2.62) (2.65)
2.151*** 2.169*** 2.181*** 2.197***
Constant
(85.84) (111.23) (112.90) (113.56)
Number in sample 109,349 109,349 109,349 109,349
F-statistic 439.70 437.91 447.52 441.73
Prob > F 0.000 0.000 0.000 0.000
So, to summarize, the Level-log models show significant results, which are comparable with
the level-level models. The economic interpretation is therefore useful for this research. The
same can be said about the Log-level and Log-log models, that show high significant values.
Even more, they both show a high adjusted R-squared, which means that the model is a good
predictor. The results and the economic interpretation of the models add value to this
research. Therefore a Log-level or Log-log model is presumably a better fit for the data.
45
6. Conclusion
This research aims to determine the effect of an IPO on the price informativeness of
competitors. This is done by measuring the effect of the number of IPOs in a year related to
the company on the yearly idiosyncratic volatility. Firms competitors are determined by using
the SIC code. For firm relatedness, four different groups of competitive IPOs were constructed
in order of the extend of their relatedness. These groups are: Division, Major group, Industry
group and Industry. In total 255,044 observations are used, coming from 37,652 companies
in the years between 1998 and 2017. For this research a total of 3,908 IPOs over that period
has been used.
Main findings
For the analyses, the outcomes are controlled for firm fixed and year fixed effects, while also
firm characteristics as Logarithm of Market value, Debt over assets, ROTA, Market to Book
ratio and a dummy for loss are included in the model.
The results point out that there is positive effect for the number of IPOs on the idiosyncratic
volatility, which corresponds to Hypothesis 1. This significant effect was found for the number
of IPOs per Major group, Industry group and Industry, while for the number of IPOs per
Division no effect was observed.
When analyzing the different years in the data, no real differences could be distinguished.
Even over the period of the financial crisis, no distinctions were discovered. This means that
no effects were found that indicate that in years with fewer IPOs the effect per IPO is larger.
Therefore Hypothesis 2 is rejected.
Result was found that indicates that the effect of the number of IPOs on the idiosyncratic risk
increases when the IPOs are more related to the company. This means that the effect of the
number of IPOs per Industry is larger than that per Industry group. In turn this effect is larger
than that per IPO per Major group, which shows again a higher result than the effect of an
IPO measured per Division. Therefore, Hypothesis 3 is accepted.
To analyze whether company size matters, the data are split into a high and a low group for
multiple company characteristics. These high and low groups were compared with each other.
This data split was done for Total Assets, furthermore, as robustness check also the splits for
Market Value and Equity are done. Significant results are found, which points to a the
difference between the high and low groups. Therefore, Hypothesis 4 is accepted, according
46
to which the effect of the number of IPOs is larger for small companies. However, some future
additional research on this point would be interesting.
It is also checked if market sentiment would influence the effect of IPOs on the Ivol. This has
been performed in two ways: in the first method a new variable was created, in which the
sentiment factor is interacted with the number of IPOs. The second method uses a split
between observations with high and low sentiment. So, this split was purely based on years
with high and low sentiment. In the results, no significant effect was found for the first
method, while the second method yielded some results that indicate that sentiment will
conversely decrease the effect of the number of IPOs. Therefore, Hypothesis 5 indicating that
sentiment will increase the effect of the number of IPOs on the Ivol, is rejected.
So, to conclude, a rather small but significant positive effect was found for the number of
IPOs on the idiosyncratic volatility of competitive firms. This answers the research question
that was raised in the introduction.
Limitations and suggestions for future research
A limitation of the research is that idiosyncratic volatility is measured over an entire year. The
impact of an IPO on the annual Ivol of a company is rather small, which is also confirmed by
the results. This research only shows the impact of an IPO in the same year. But it does not
demonstrate, for example, the impact of the IPO on its competitors in the week around an
IPO and neither does it present the effects in three or five years.
Another limitation of the research is the use of the SIC codes as a criterion for selection. When
a company is present in more than one specific Industry, the SIC code will give the industry
number of its main activity. Since not all SIC codes could be extracted from just one database,
two different databases (SDC database and WRDS website) were used. However, when both
database had the same company, the SIC codes did not always match. Sometimes, the
datasets determined the core business of the company differently. For example, one database
could have SIC code 2521, while the other would give 2523 for the same company. This does
not influence the first three majors of counting the number of IPOs. However, it does affect
the counting of the numbers of IPOs per Industry. This was a rather minor problem, since it
did not occur often and it was tried to use the same database as much as possible. However,
it would still be better if the same database could have been used for all observations.
The possible endogeneity for the number of IPOs is also a limitation for this research.
Simultaneity between the number of IPOs and the volatility cannot be ruled out. Furthermore,
47
the existence of omitted variables is also an important issue. There could be sector wide and
market wide factors that influence the number of IPOs as well as the volatility. It results in a
biased error term, which a violation of the OLS assumptions. This could mean that the results
are wrongly estimated. In that scenario the endogeneity could be addressed with one of the
following three methods: Instrumental Variables, Difference-in-Differences or Regression
Discontinuity Design.
What could be worthy for future research is to go deeper into Hypothesis 4, where already
some indications of an effect are found. It could be interesting to use a measure for company
size, that includes all factors instead of checking the results of separate splits. Furthermore,
it could be useful to interact this size factor with the number of IPOs, instead of only doing a
split between the upper half and lower half of the results.
Furthermore, the splits on performance indicators showed some indications of a difference

between high and low preforming companies. This would be an interesting point for future
research as well.
It would also be worthwhile to extend the number of years in another research. In Figure 1 ,
for example, it was shown that the number of IPOs in the last 20 years has decreased,
compared to the decades before. It could be interesting to see if the impact of an IPO is
higher in the last twenty years than in the period before.
The last recommendation is to make an interaction with the stock exchange at which the
company is traded on. It is, for example, interesting to use a kind of sentiment score, that is
only for the specific stock exchange where the stock is traded. This may produce different
results than the general sentiment score that was used in this research. Another question for
research would be to examine if the effect of the IPO is stronger when it is traded on the
same stock exchange as the competitor.
48
Reference list
Akhigbe, A., Borde, S., Whyte, A. (2003). Does an Industry Effect Exist for Initial Public
Offerings?. The Financial Review 38, pp. 531-551
Akhigbe, A., Johnston, J., Madura, J. (2006). Long-term industry performance following IPOs.
The Quarterly Review of Economics and Finance 46, pp. 638-651
Anatonakis, J., Bendahan, S., Jacquart, P., Lalive, R. (2014), Causality and Endogeneity
Problems and Solutions. The Oxford Handbook of Leadership and Organizations, pp. 93-117
Ang, A., Hodrick, R., Xing, Y., Zhang, X. (2006). The Cross-Section of Volatility and Expected
Returns, The Journal of Finance Vol LXI NO.1, pp. 259-299
Angelini, E., Foglia, M. (2018). The Relationship Between IPO and Macroeconomics Factors:
An Empirical Analysis from UK Market. Annals of Economics and Finance 19-1, pp. 319-336
Astakhov, A., Havranek, T., Novak, J. (2019), Firm Size and Stock Returns: A quantitative
survey. Journal of Economics Surveys Vol 00 NO. 0, pp. 1-30
Baker, M., Wurgler, J. (2006). Investor Sentiment and the Cross-Section of Stock Returns.
Journal of Finance Vol LXI NO. 4, pp. 1645-1680
Baker, M., Wurgler, J. (2007). Investor Sentiment in the Stock Market, Journal of Economic
Perspective Vol 21 NO. 2, pp. 129-151
Barragan, J. (2018). The impact of earthquakes on Latin American stock markets. Master
thesis Finance Tilburg University
Brau, J., Fawcett, S. (2006). Initial Public Offerings: An analysis of Theory and Practice. The
Journal of Finance Vol LXI NO.1, pp. 399-436
Braun, M., Larrain, B. (2009). Do IPOs Affect the Prices of Other Stocks? Evidence from
Emerging Markets. The Review of Financial Studies Vol 22 NO.4, pp. 1505-1544
Brav, A., Michaely, R., Roberts, M., Zarutskie, R. (2009). Evidence on the Trade-Off between
Risk and Return for IPO and SEO Firms. Financial Management summer 2009, pp. 221-252
Brincke ten, J. (2018). The predictability of stock market crashes. Master thesis Finance
Tilburg University
Butler, A., Fauver, L., Spyridopoulos, I., (2018). Local Economic Spillover Effects of Stock
Market Listings. Journal of Financial and Quantitative Analysis 54(3), pp. 1025-1050
49
Chang, K., Yong-Cheol, K., Heyongsop, S. (2013). Weak firms follow strong firms in hot IPO
markets. Asia-Pacific Journal of Financial Studies 42, pp. 76-108
Chemmanur, T., Fulghieri, P. (1997). Why Include Warrants in New Equity Issues? A Theory
of Unit IPOs. Journal of Financial and Quantitative Analysis Vol 32 NO: 1, pp. 1-24
Chen, Q., Goldstein, I., Jiang, W. (2006). Price Informativeness and Investment Sensititvity
to Stock Price. The review of Financial Studies Vol 20 NO 3, pp. 619-650
Chod, J., Lyandres, E. (2010). Strategic IPOs and product market competition. Journal of
Financial Economics 100(1), pp 45-67
Clark, A., Colville, W. (2018). June 13. Payment-Tech Company Adyen Soars in European
Market Debut. The Wall Street Journal. retrieved from: https://www.wsj.com/articles/payment-
tech-firm-adyen-soars-in-european-market-debut-1528889497
Clougherty, J., Duso, T. (2009). The Impact of Horizontal Mergers on Rivals: Gains to Being
Left Outside a Merger. Journal of Management Studies 46, pp. 1365-1395
Davis, J., Fama, E., French, K. (2000). Characteristics, Covariances and Average Returns: 1929
to 1997. The Journal of Finance Vol LV NO.1, pp. 389-406
Diavatopoulos, D., Doran, J., Peterson, D. (2008). The Information Content in Implied
Idiosyncratic Volatility and the Cross-section of Stock Returns: Evidence from the Option
Markets. The Journal of Futures Markets Vol 28, NO. 11, pp. 1013-1039
Douglas, M. (2009). The Year in Bankruptcy: 2008, Jones Day. retrieved from:
https://www.jonesday.com/en/insights/2009/02/the-year-in-bankruptcy-2008
Downs, T., Ingram, R. (2000). Beta, Size, Risk and Return. The Journal of Financial Research
Vol XXII No. 3, pp. 245-260
Drake, M., Myers, J., Myers, L., Stuart, M. (2014). Short Sellers and the Informativeness of
Stock Prices with Respect to Future Earnings, Review of Accounting Studies 2
Dye, J. (2018). June 13. Ayden gains almost 90% in first trading day, Financial Times.
retrieved from: https://www.ft.com/content/ff19b96a-6f28-11e8-852d-d8b934ff5ffa
Fama, E., French, K. (1992). The Cross-Section of Expected Stock Returns. The Journal of
Finance Vol XLVII NO.2, pp. 427-465
Fama, E., French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal
of Financial Economics 33 pp. 3-56
50
Fama, E., French, K. (1995). Size and Book-to-Market Factors in Earnings and Returns. The
Journal of Finance Vol L NO.1, pp. 131-155
Fama, E., French, K. (1996). Multifactor Explanations of Asset Pricing Anomalies. The Journal
of Finance Vol LI, NO.1, pp. 55-58
Fama, E., French, K. (2002). The Equity Premium. The Journal of Finance Vol LVII NO.2, pp.
637-659
Fama, E., French, K. (2015). A five-factor asset pricing model. The Journal of Financial
Economics 116, pp. 1-22
Fama, E., French, K. (2018). Choosing factors. Journal of Economics 128, pp. 234-252
Fernandez, N., Ferreira, M. (2009). Insider Trading Laws and Stock Price Informativeness.
The Review of Financial Studies Vol 22 NO.5, pp. 1845-1887
Ferreira, M., Laux, P. (2007). Corporate Governance, Idiosyncratic Risk and Information Flow.
The Journal of Finance Vol LXII NO.2, pp. 951- 989
Fink, J., Fink, K., He, H. (2012). Expected Idiosyncratic Volatility Measures and Expected
Returns. Financial Management Fall 2012, pp. 519-553
Fletcher, J. (2007). Can Asset Pricing Models Price Idiosyncratic Risk in U.K. Stock Returns?.
The Financial Review 42, pp. 507-535
Foye, J., Mramor, D., Pahor, M. (2013). A Respecified Fama French Three-Factor Model for
the New European Union Member States. Journal of International Financial Management and
Accounting 24, pp. 3-25
Geertsema, P., Lu, H. (2019). Regulated price and Demand in China’s IPO market. Journal of
Economics and Business
Gormley, T., Matsa, D. (2014). Common Errors: How to (and Not to) Control for Unobserved
Hetrogeneity. The Review of Financial Studies 27, pp. 617-661
Goyal, A., Santa-Clara, P. (2003). Idiosyncratic Riks Matters!. The Journal Of Finance Vol LVIII
NO. 3, pp. 975-1007
Guo, H. (2011). IPO First-Day Return and Ex Ante Equity Premium. The Journal of Financial
and Quantitative Analysis, 46(3), pp. 871-905.
51
HengelBrock, J., Theissen, E., Westheide, C. (2013). Market Response to Investor Sentiment.
Journal of Business Finance and Accounting 40, pp. 901-917
HSU, H., Reed, A., Rocholl, J. (2010). The New Game in Town: Competitive Effects of IPOs.
The Journal of Finance Vol LXV NO. 2, pp. 495-528
Hu, O. (2007). Applicability of the Fama-French Three-Factor Model in Forecasting Portfolio

Returns. The journal of Financial Research Vol XXX NO. 1, pp. 111-127
Jenkinson, T., Jones, H. (2009). Competitive IPOs, European Financial Management, Vol 15
NO.4, pp. 733-756
Jiang, X., Lee, B. (2006). The Dynamic Relation Between Returns and Idiosyncratic Volatility.
Financial Management Summer 2006, pp. 43-65
Kharpal, A. (2018). June 13, PayPal rival Adyen surges 90 percent in IPO with valuation
topping $15 billion. CNBC. retrieved from: https://www.cnbc.com/2018/06/13/adyen-ipo-shares-
rise-on-first-day-of-trade.html
Krieken van, J., (2018). Volatility and Stock Market Crashes. Master thesis Finance Tilburg
University
Lee, S., Bach, S., Baik, Y. (2011). The Impact of IPOs on the Values of Directly Competing
Incumbents. Strategic Entrepreneurship Journal 5, pp. 158-177
Lang, L., Stulz, R. (1992). Contagion and competitive intra-industry effects of bankruptcy
announcements. Journal of Financial Economics 32, pp. 45-60
Malkiel, G., Xu, Y. (1997). Risk and Return Revisited. Journal of Portfolio Management 23, pp.
9-14
Malkiel, G., Xu Y. (2006). Idiosyncratic Risk and Security Returns, Princeton University and
The University of Texas at Dallas
Mashruwala, C., Rajgopal, S., Shevlin, T. (2006). Why is the accrual anomaly not arbitraged
away? The role of idiosyncratic risk and transaction costs. Journal of Accounting and
Economics 42, pp. 3-33
McGilvery, A., Faff, R., Pathan, S. (2012). Competitive valuation effects of Australian IPOs.
International Review of Financial Analysis 24, pp. 74-83
Molchanov, A., Stangl, J. (2018), Investor sentiment and industry returns. International
Journal of Finance & Economics 23(4), pp. 546-570
52
Moll, C., Huffman, S. (2016). The incremental information content of innovations in implied
idiosyncratic volatility. Review of Financial Economics 30, pp. 33-44
Nikolov, P. (2013). Writing Tips for Economics Research Papers
Officer, M., Poulsen, A., Stegemoller, M. (2009). Target-firm information asymmetry and
acquirer returns. Review of Finance 13, pp. 467-493
Panousi, V., Panpanikolaou, D. (2012). Investment Idiosyncratic Risk and Ownership. The
Journal of Finance Vol LXVII NO.3, pp. 1113-1148
Pástor, L., Veronesi, P. (2005). Rational IPO Waves. The Journal of Finance Vol LX NO. 4, pp.
1713-1755
Pavanini, N. (2018). Lecture slides Emperical Methods in Finance Week 5 Endogeneity. Tilburg
University
Peterson, D., Smedema, A. (2013). Idiosyncratic Volatility Covariance and Expected Stock
Returns. Financial Management Fall 2013, pp. 517-536
Picolli, P., Costa, Jr. N., da Silva, W., Cruz, J. (2018). Investor Sentiment and the risk-return
trade-off in the Brazilian market. Accounting and Finance 58, pp. 599-618
Pinzón, E. (2016). Dealing with and understanding Endogeneity. Lecture slides Barcelona
Qadan, M., Kliger, D., Chen, N. (2019). Idiosyncratic volatility, the VIX and stock returns.
North American Journal of Economics and Finance 47, pp. 431-441
Ritter, J. (2019). Initial Public Offerings: Sales Statistics Through 2018
Sakhartov, A., Folta, T. (2014). Resource Relatedness, Redeployability and Firm Value.
Strategic Management Journal 35, pp. 1781-1797
Sherman, A. (2005). Global Trends in IPO Methods: Book Building vs. Auctions with
Endogenous Entry. Journal of Financial Economics 78, pp. 615-649
Slovin, B., Suskha, M., Bendeck, Y. (1991). The Intra-Industry Effects of Going-Private
Transactions. The Journal of Finance Vol 46 No.4, pp. 1537-1550
Slovin, B., Sushka, M., Ferraro, S. (1995). A comparison of the information conveyed by equity
carve-outs, spin-offs, and asset sell-offs. Journal of Economics 37, pp. 89-104
Spiegel, M., Tookes, H. (2008). Why Does an IPO Impact Rival Firms. paper under
construction. The review of Financial studies
53
Sullivan, A. (2009). March 5, U.S. bankruptcy filings up 31 percent in 2008. The Thomson
Reuters Trust Principles. retrieved from: https://www.reuters.com/article/us-usa-bankruptcy-
filings/u-s-bankruptcy-filings-up-31-percent-in-2008-idUSTRE5246GO20090305
Wang, C. (2002). Information Trading Demand, and Futures Price Volatility. The Financial
Review 37, pp. 295-316
Wooldrige, J. (2012). Introductory Econometrics a modern approach Chapter 19, pp 678-703
Yin, L., Shu, T., Su, Z. (2018). Common idiosyncratic volatility and returns: From an
investment horizon perspective. Journal of Finance & Economics 24(1), 370-390
Yook, Y. (2006). Stock Price Informativeness and Corporate Spinoffs, Kenan-Flager Business
School
54
Appendix
A. SIC code information per Industry
IPOs 1998- Total

SIC code range Division Observations
2017 companies
Agriculture,
0100-0999 Forestry, 8 856 640,138
Fishing
1000-1499 Mining 141 29,086 31,138
1500-1799 Construction 29 2,104 1,376,188
2000-3999 Manufacturing 1,232 73,443 625,387
Transportation
4000-4999 and Public 324 17,644 822,664
Utilities
Wholesale
5000-5199 65 5,897 684,413
Trade
5200-5999 Retail Trade 192 9,522 2,510,370
Finance,
6000-6799 Insurance, 800 97,310 1,515,530
Real Estate
7000-8999 Services 1,111 37,755 7,967,447
Public
9100-9999 2 30 214,087
Administration
55
B. Regressions without control variables
B1. Regression for number of IPOs per Division
Effect number of IPOs per Industry without control variables

-0.026*** -0.010 -0.056***
(-4.44) (-1.24) (-6.45)
22.607*** 21.966*** 23.820***
Constant
(52.20) (45.72) (69.15)
Number in sample 255,044 255,044 253,292
F-statistic 19.74 1.53 41.54
Prob > F 0.000 0.216 0.000
B1. Regression for number of IPOs per Major Group
Effect number of IPOs per Major group without control variables

-0.083*** -0.056*** -0.045***
Number of IPOs per Major Group
(-8.82) (-5.54) (-3.34)
22.458*** 22.168*** 22.095***
Constant
(59.66) (59.88) (149.84)
Number in sample 255,044 255,044 253,292
F-statistic 77.83 30.67 11.18
Prob > F 0.000 0.000 0.001
56
B3. Regression for number of IPOs per Industry Group
Effect number of IPOs per Industry group without control variables

-0.095*** -0.058*** -0.041**
Number of IPOs per Industry Group
(-7.29) (-4.27) (-2.21)
22.150*** 21.917*** 21.854***
Constant
(60.73) (61.20) (189.78)
Number in sample 255,044 255,044 253,292
F-statistic 53.16 18.19 4.88
Prob > F 0.000 0.000 0.027
57
C. Correlation Matrix
Number of IPOs per Log Market to Debt over Log (Market Loss Dividend
ROTA ROE
Industry (Assets) Book ratio Assets value) Dummy dummy
Number of IPOs per Industry 1.000
Log (Assets) -0.061 1.000
Market to Book ratio -0.002 -0.002 1.000
Debt over Assets 0.001 -0.044 0.000 1.000
Log (Market value) 0.008 0.871 0.012 -0.022 1.000
Loss Dummy 0.101 -0.266 0.009 0.000 -0.240 1.000
Dividend dummy -0.088 0.425 0.000 -0.008 0.391 -0.192 1.000
ROTA -0.005 0.133 0.002 -0.193 0.057 -0.026 0.030 1.000
ROE -0.003 0.006 0.029 0.000 0.008 -0.008 0.001 0.002 1.000
58
D. Regressions with and without fixed effects and control variables
D1. Regression for number of IPOs per Division

-0.026*** -0.013*** -0.015***
Number of IPOs per Division 0.005 (0.94)
(-4.44) (-4.90) (-4.08)
-2.276*** -2.317*** -2.547***
Log (Market value)
(-26.37) (-26.07) (-9.84)
-1.652** -1.862*** -6.071***
Debt over assets
(-2.52) (-2.80) (-4.44)
-2.498*** -2.423*** -0.208
ROTA
(-3.48) (-3.37) (0.24)
0.373*** 0.372*** 0.232***
(9.14) (9.10) (4.72)
0.123 -0.005 -0.007
Loss dummy
(0.21) (-0.01) (-0.01)
22.607*** 18.611*** 18.973*** 20.483***
Constant
(52.20) (32.18) (30.97) (14.96)
Number in sample 255,044 111,771 111,771 109,349
F-statistic 19.74 183.94 178.55 22.16
Prob > F 0.000 0.000 0.000 0.000
D2. Regression for number of IPOs per Major group

-0.083*** -0.001 0.002 0.018**
Number of IPOs per Major Group
(-8.82) (-0.24) (0.34) (2.40)
-2.276*** -2.333*** -2.581***
Log (Market value)
(-26.37) (-26.13) (-9.89)
-1.488** -1.510** -6.040***
Debt over assets
(-2.26) (-2.27) (-4.43)
-2.522*** -2.423*** 0.209
ROTA
(-3.51) (-3.37) (0.24)
0.368*** 0.367*** 0.231***
(9.03) (9.00) (4.69)
0.202 0.073 -0.023
Loss dummy
(0.34) (0.12) (-0.03)
22.458*** 18.036*** 18.316*** 20.679***
Constant
(59.66) (32.45) (31.96) (14.91)
Number in sample 255,044 111,771 111,771 109,349
F-statistic 77.83 185.67 180.05 22.27
Prob > F 0.000 0.000 0.000 0.000
59
D3. Regression for number of IPOs per Industry group
-0.095*** 0.007 0.010 0.027**
Number of IPOs per Industry group
(-7.29) (0.81) (1.21) (2.51)
-2.277*** -2.336*** -2.585***
Log (Market value)
(-26.40) (-26.14) (-9.92)
-1.388** -2.396** -6.026***
Debt over assets
(-2.10) (-2.08) (-4.42)
-2.518*** -2.416*** 0.205
ROTA
(-3.51) (-3.36) (0.23)
0.365*** 0.365*** 0.230***
(8.99) (8.97) (4.68)
0.193 0.058 -0.024
Loss dummy
(0.32) (0.10) (-0.03)
22.150*** 17.983*** 18.284*** 20.731***
Constant
(60.73) (32.64) (32.18) (14.91)
Number in sample 255,044 111,771 111,771 109,349
F-statistic 53.16 185.21 179.46 22.34
Prob > F 0.000 0.000 0.000 0.000
60
E. IPO dummy models
E1. Dummy model method 1
Per Major Per Industry Per

Dummy Per Division
Group group Industry
1 IPO 0.428 0.226 0.225 0.344
2 IPOs 3.479 2.086*** -0.146 0.462
3 IPOs 2.108 0.084 -0.282 -0.571
4 IPOs 1.716 0.240 0.674 0.761
5 IPOs 2.866 -0.912 -0.488 0.092
6 IPOs 0.237 -0.115 -0.106 3.822**
7 IPOs 1.076 -0.209 2.160 0.682
8 IPOs -0.735 1.005 2.141 1.268
9 IPOs 0.061 -1.837 -1.540 1.281
10 IPOs 0.323 -1.252 -0.552 2.149
11 IPOs 1.250 -0.236 1.287 5.122*
12 IPOs - -0.180 -0.994 3.823
13 IPOs 0.684 -0.124 -0.610 -1.449
14 IPOs 0.744 2.054 3.501 -0.017
15 IPOs 0.913 0.603 0.877 -5.989***
More than 15
1.266 1.567 1.612 2.408**
IPOs
E2. Dummy Model method 2

Dummy Per Division
1-5 IPOs 2.043 0.592 0.158 0.310
6-10 IPOs -0.222 0.321 0.840 1.940**
10-15 IPOs 0.472 0.772 0.363 1.829
16-20 IPOs 0.737 1.680 0.732 -1.316
21-25 IPOs 0.610 1.093 0.360 2.799
26-30 IPOs 0.416 4.016* -0.575 4.246*
31-35 IPOs 2.226 2.104 8.405*** 4.016**
36-40 IPOs -0.019 3.921** 2.809 -
41-45 IPOs 1.433 1.676 1.555 7.809
46-50 IPOs 1.833 - - -
More than 50
0.542 3.951*** 4.448** 7.338***
IPOs
61
E3. Dummy Model method 3

Dummy Per Division
1-25 IPOs 1.874 0.557 0.188 0.382
26-50 IPOs 2.613 2.254** 3.838*** 4.096**
51-75 IPOs 1.824 3.905** 4.578** 4.255*
76-100 IPOs 2.509 2.936** 0.030 9.610***
101-125 IPOs 3.077 0.149 - -
126-150 IPOs 1.874 - - -
151-175 IPOs - - - -
176-200 IPOs 2.776 - 8.126*** -
201-225 IPOs - 6.830*** - -
226-250 IPOs 4.207* - - -
62

file151100.H.F. Camp

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

file151100.H.F. Camp

Uploaded by

Copyright:

Available Formats

MASTER THESIS FINANCE

The Effect of IPOs on the Stock Price Informativeness of Peer Firms

Author: K.H.F. Camp

ANR / SNR: 401194 / 2018017

Second reader: Dr F. Hosseini

Date: October 1 , 2019

Is there an effect for the number of IPOs on the price informativeness of

2.1 Effect IPO on competitors

2.2 Price informativeness and Idiosyncratic risk

 −  =  + ! "# −  $ + % &'( + ) *', + - (Equation 1)

&/012'/01 = −0.2419/:; + 0.2421<0>! + 0.25302AB + 0.2572AB>! + 0.112& −

3.1 IPO data

Number of IPOs per year

Figure 1: Number of IPOs per year

3.2 Idiosyncratic volatility data

Number of observations for each specific year Years of data

Year Number of observations Years of data Number of firms

3.3 SIC code

The company Rockworth PCL has SIC code 2521

Code between 2000-3900 -> Division: Manufacturing

First three digits 252 -> Industry Group: Office Furniture

Entire SIC code 2521 -> Industry: Wood Office Furniture

3.4 Final database

3.5 Sentiment data

Variables Mean SD Min P25 P50 P75 Max N

4.1 Fixed effects

Effect of the number of IPOs per Industry without control variables

Variables Model 1 Model 2 Model 3

4.2 Control variables

 =  +   !"# + $% + & + ' + ( (Equation 3)

Variables Articles Definition

4.3 Outliers, Heteroscedasticity, Collinearity and Endogeneity

Heteroscedasticity can best be described as subpopulations in data that show mutual

5.1 The number of IPOs and one additional IPO

Regression number of IPOs per Industry

Variables Model 1 Model 2 Model 3 Model 4

Table 7: Regression overview with fixed effects and control variables

Variables Model 1 Model 2 Model 3 Model 4

5.2 Year specific results

β-coefficient for Number of IPOs

Division Major group Industry group Industry

Figure 2: Beta coefficient per year for four different models

Size related split

5.4 Sentiment Score

Regression Sentiment Score interacted with the number of IPOs

Variables Model 1 Model 2 Model 3 Model 4

Number in sample 109,349 109,349 109,349 109,349

F-statistic 22.14 22.50 22.52 22.07

Regression making difference between high and low Sentiment Score

Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Variables Model 1 Model 2 Model 3 Model 4

Table 18: Regression Log-Level model

Variables Model 1 Model 2 Model 3 Model 4

Variables Model 1 Model 2 Model 3 Model 4

Limitations and suggestions for future research

Furthermore, the splits on performance indicators showed some indications of a difference

Hu, O. (2007). Applicability of the Fama-French Three-Factor Model in Forecasting Portfolio

Nikolov, P. (2013). Writing Tips for Economics Research Papers

Ritter, J. (2019). Initial Public Offerings: Sales Statistics Through 2018

Wooldrige, J. (2012). Introductory Econometrics a modern approach Chapter 19, pp 678-703

A. SIC code information per Industry

IPOs 1998- Total

− = + ! "# − $ + % &'( + ) *', + - (Equation 1)

&/012'/01 = −0.2419/:; + 0.2421<0>! + 0.25302AB + 0.2572AB>! + 0.112& −

= + !"# + $% + & + ' + ( (Equation 3)