Signalling IPO readiness in a changing environment : the changing impact of listing standards and media coverage on IPO performance

Abstract

The study responds to a call for further research into the impact of changes in the initial public offering (IPO) signalling environment, on IPO signalling and IPO performance, in particular the impact of changes in the regulatory and media environment of IPOs. The study makes a contribution to theory, practice and methodology. The study examines the impact of a major change in the IPO environment, the 2008 global financial crisis (GFC), on IPO signalling and IPO performance. The study is set in the South African IPO market, based on a survey of the population of IPOs on the Johannesburg Stock Exchange (JSE), and the Alternative Exchange (AltX, a division of JSE), from 2003 to 2019, the period over which the JSE and AltX have coexisted to date. The study confirms that there was an increase in the impact of listing standards and media coverage on IPO performance, comparing pre-GFC and post-GFC. The study makes three contributions to signalling theory. First, the study finds that major changes in the IPO environment, such as the GFC, have an impact on IPO signalling and IPO performance. Second, the study finds that there was an increase in the signalling impact of listings standards and media coverage on IPO performance, from pre-GFC to post-GFC. Third, the study tests the application of signalling theory in the smaller IPO market of South Africa, and demonstrates the effects and limitations of signalling theory in a smaller IPO market. The study contributes to practice by informing the decision-making of key IPO players, including listing companies, investors and stock exchanges. The study contributes to methodology in demonstrating the use of sample selection criteria, based on IPO signalling studies, in the South African IPO market, in which signalling theory has not previously been adopted as the primary theory base in IPO studies. Study limitations include the relatively small size of the IPO population surveyed, a consequence of the limited size of the IPO market in South Africa. The study has identified various opportunities for further research. One is to improve scholarly understanding of the relationship between cross-listings and IPO performance, as revealed by the study, suggesting the signalling impact of the increased globalisation of the exchange environment.