Determinants of IPO Withdrawals. An Empirical Analysis of Germany

Abstract

Stock markets represent a way for companies to access funds. To be able to make what is called an initial public offer (IPO) , which is the term for when a company first accesses this market, a variety of legal and financial requirements need to be met. Often there is uncertainty about what investors are willing to pay for a stock of the company, hence IPOs are underpriced. This under pricing is costly for the company and can cause the firm to withdraw its initial public offer at any stage . In Germany from 2001 until 2015 , a bout 14 % of the companies filing to go public withdraw. There is surprisingl y little research on this area. Employing binary as well as multinomial probit regressions, t his analysis focuses on the determinants of withdrawals in the German IPO market. Considering a multitude of academic papers about initial public offerings, we select market and firm characteris tics and compute the respective effects on the probability to withdraw. Our work provides new insights into the German IPO market and the probability to withdraw. This analysis demonstrates that results on the US - American IPO market cannot be adapted to th e German one without further proof. In contrast to the US - American market, withdrawn IPOs show higher levels of venture capital backing and of underwriter reputation. In the bank - dominated German market, the characteristics of both substantially differ fro m the US -

American counterparts. Also, multinational companies are more likely to withdraw due to having a higher level of alternative sources of funding outside of Germany. We discovery that negative news prior to an IPO as well as the intent to retire deb t increase the probability of withdrawal.