ARE FOREIGN AND DOMESTIC LISTINGS ON THE SINGAPORE STOCK EXCHANGE DIFFERENT?

Abstract

This paper is motivated by the assertion in the local media that foreign companies that choose to list on SGX are of poorer quality and hence, lower the overall quality of the stock exchange listings. Using the initial and subsequent price performance as measures, I find that foreign firms are not significantly different from domestic listings on SGX. The implication is that SGX is able to attract similar, if not better quality firms, to list in Singapore. My findings also indicate that the ex ante uncertainty hypothesis and hot market hypothesis have significant explanatory power in determining the underpricing of IPOs in Singapore. Firm volatility, measured by the standard deviations of daily returns post-listing, is positively related to the level of underpricing. The sizes of issues are negatively related to underpricing, and our results suggest that a larger issue size will result in reduced underpricing. There is a positive relation between the level of underpricing and the market returns in the prior periods leading up to the listing. In contrast to empirical studies conducted in U.S, the use of prestigious underwriters to certify an issue does not seem to be effective in reducing underpricing in our sample. Conversely, I also find that strong corporate governance has an inverse relation with underpricing. This coincides with the increased focus on corporate governance by both investors and regulators.