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Journal of Financial Economics 23 ( 989) 251-272.

Nort

rancis
National Universiq of Singapore

Uniuersitvof Sydnqv, S)dnq: NS W, 2OOfiA ustralia

Received December 1987, final version received October 1988

Unique data availability and institutional arrangements for new issues in Singapore allow a direct
test of the empirical implications of Rocks model of pricing unseasoned new issues. Our empirical
results are consistent with the model. Specifically we find that the unseasoned new issues anomaly
disappears when the rationing associated with new issues is incorporated into the analysis. The
winners curse is evident in allocation patterns used in Singapore.

That unseasoned new issues are underpriced is well docu


empirical finance literature. This paper directly tests
which explains in equilibrium, new issues are un
eimpirical test o ks model involves observing the ex
are rationed on the offer date. If the model is correct, wei
the probabilities of obtaining an llocation should 1
investor earning the riskless rat
been conducted previcusly because the necessa
available. The unique institutio
market in Singapore, however,
le, permit a direct test.
cks model rationing per se is insu
also necessary to show that ration
6
shares. is winners curse c

-4bSY /39/$3.50Q 1989, Elsevicr Science


252 F. Koh and T. Waltw, The pricing of unseusoved issues

valuation of because informe demand makes the probability of


receiving an allocation lower for underpriced (i.e., positive initial

ccordingly, uninformed investors

ors occurs when the cost of infor


new issues. Uninformed
s associated with applica-
tions for overpriced issues equal the expected gains from applications for
u
scrioes in detail the institutional arrangements for new
issues in Singapore. A key feature of t s market is that the basis used for
rationing when issues are oversubscribed is disclosed publicly. The balloting of
issues (i.e., a ra dom selection from all applications) takes place in public and
is evenhanded in the sense that all applications of a particular size have an
equal probability of being accepted. These procedures ensure that applicants
for a particular number of shares face a fair game.
pore operates under the general principles of British company law.
c when accompanied by a prospectus
. The prospectus details the
ce, neither of which can be
ihe issue. A prospectus in Singapore is typically
ree to four weeks before the applications 4osing date and there are
tial stock-exchange listing. Thus the
in advance over a lengthy period. In
ion to enable an investor to evaluate
sue, historical accounting and other
y, a one-year-ahead earnings fore-
, other statutory information (for
prescribed reports (i.e., the direc-

lications of Rocks

the unseasoned new issues


y evident. Third, our results

uninformed investor participation see


nformcd participation to meet stock-
writer and size.

etails of all new issues since the inc ration of the Singapore
Exchange (SSE) in 1973 listed on the SSE
monthly SSE journals. Seventy new issues resu
70 companies at the SSE library to extract the details of
adopted and find data for 48 issues. Before 1980 few firms routinely filed these
details with the exchange. A comprehensive search is made of the daily
business newspapers (the Business Times and the Straits Time) for the period
between he application-closing date stated in the prospectus and the lis
date. This produces data on the allocation basis for a further ten issues.
call the remaining companies and their underwriters for the data (wit
subsequent written confirmation of the request), and establish a further eight
data points. Thus, for 66 of the 70 firms we are able to establish information
on the allocation system adopted. This allows us to calculate the probability of
an allocation, conditional on the size of an application, for each is
Other data are relevant to our experiment. First-day sales prices
and last sale) are extracted from the daily trading summaries of the SSE. The
issue price per share, the number of shares offered, the underwriter and the
applications-close date are collected from rke prospectus. TIPe risk-frez rate of
interest and the prime rate prevailing during this listing lag
close date to listi re extracted from publications of the
ity of Singapore

thod
F. Koh and T. Walter, The pricing of unseasoned issues

lots in each new is

e assume that funds


in accord with the following:

e time in days and n, the number of lots applied for, where

assume each application involves an opportunity interest cost of 2% above


the period funds are tied up as defined above. Fixed costs
ion are assumed to be S$5, and represent the cost of obtaining a
postage costs, and other application processing costs.

ons are based on average conditions prevailing in the


usly arbitrary for individual issues. The results are
the way we model the cost of the application, but by
ng an allocation.

s the normal unseasoned-new-issues experiment results. Re-


66 issues (i) and 1,000 strategies (s) are defined as follows:

,,=ln -
I
Excess
Return 0.271

i
0.27 -j

0.269

1
0.267

Number of hots (of one thousand shares each) in the Application Strategy

Fig. 1. Average initial-listing-day excess return for 66 new issues made between January 1973 and
June 1987 on the Singapore Stock Exchange for investment strategies in the range of one to 1,000
lots (of 1,000 shares each) on the assumption that no rationing occurs. The estimated t-statistics
that these excess returns are greater than zero are in the range of 4.01 to 4.24.

4 = continuously compounded risk-free return over the period from applica-


tion to listing fur issue i.

hese returns are then averaged for the sample of 66 issues for which we have
data.
The assumption in fig. I is that a full allocation of the requested shares is
granted, though we incorporate the cost of an application (i.e., interest costs
and fixed costs) as d~scrih.i
. in the previous section.
Irrespective of the investment strategy ado
anomaly is present in fig. 1.
rate (with associated t-statis

The t-statistics on the excess returns differing f


the distribution of excess ret s is generally s
skewness and kurtosis coefficients for our excess-retu distributions, an
departures from a normal distribution, the extent of the
of a f-statistic.
Skewness coefficients for fig. 1
256 F. Koh and T. Waiter, The pricing of unseasoned issues

enefit associate with larger-investment strategies because of the as-


co. t of an application.
if no account is taken of cost? The short answer is that
ntially identical to those in fig. 1, so a full figure is not

l-10 lots returns of 0.274, with t-statistics of 4.19,


IL-154 lots returns of 0.281, with t-statistics of 4.29,
155-162 lots returns of 0.280, with t-statistics of
163~31,000 lots returns of 0.273, with t-statistics of

he cost of application explains a difference in returns of less than $ of 1


percent. As we show below, incorporating rationing has a far more dramatic
effect.
ig. 2 resents probabi!_ities of receiving an allocation conditional on an
a-,+&on size of 1,000 to 1 million shares, for new issues ofi the SSE. Three
ortions are plotted. The first relate to all new issues for which data are
able, the second covers the underpriced issues (ex post identification), and
the thir overs the overpriced issues (again identified ex post). Three points
emerge. rst the data reveal a systematic preference in the allocation system
for small investors! Across all issues the probability of an allocation when
1,000 shares are applied for is 0.35, which is more than twice the probability of
success (0.16) when 1 million shares are sought. Second, the winners curse is
chance of an ailocation in overpriced issues is more than
nc: of an allocation in underpriced issues. Third, under-
57) are far more common than overpriced issues (n = 9).
tors ability to exploit this underpricing to secure the returns
1 is reduced because, as fig. 2 clearly shows, investors, on
cated higher proportions of the losers.7 In addition, the costs
ignored. Applications for new issues on the SSE must be
by payment of a cash equivalent (i.e., a bankers draft, cashiers
etc.) and thus there is an opportunity loss associated with placing these
s with the issuer.

The discontinuities in these results at 11, 155, and 163 lots are caused by three issues in which
the maximum allowable application size was 10, 154, and 162 lots, respectively. These limits were
to comply with regulations that limit the maximum individual shareholding in newspaper
es (two cases) and in a chemical company.
for the issues in this study is in the range of S$l to S$5, with a mean of
oximately U$l, so an application for one lot involves an amount of

issues were undersubscribed, while six were


e average avers se six was, however, only 3.1 times. compared
F. Koh and T. Waker, The pricing of unseasorted issues 257

Probability
of an 0.5 Overpricedksues(9)
Allomtion

0.
-l___

100 200 300 400 500 600 700 !,IOQ*


Number of Lots (of one thousandshrei sa~hl :- the ApplicationStrategy
h_.si .,,

Fig. 3 Probability of receiving an allocation of shares in 66 new issues made between January
1973 and June 1987 on the Singapore Stock Exchange for investment strategies in the raulge of one
to 1,ooO lots (of X.000 shares each) and subdivisions according to whether the issue was
underpriced (57 issues) or overpriced (9 issues).

The allocation bias also depends on the extent of unde ricing, although
these results are not reported in fig. 2. The probability of receiving an
allocation in new issues where the excess return is positive but less than 30
percent is in the range of 0. plication for one lot) to 0.23 (fo:r 1,000
lots). The corresponding probabilities for issues vwith initial returns greater
than 30 percent are 0.16 and 0.06, respectively, less than one third the Gze.
Fig. 3 results plot average returns (after incorporating ratio
tion costs) against the ntumber of lots in the applicatio
(Xi, S) are calculated as follows,s and these are then summ

Rock argues that the overall retxn should


an allocation, by the probability of receiving a
which rises 40 percent on the fir day, and there is a 50
the returr; is defined as 8.5 In(l
ln[l + (0.5 x 0.4)]. We use this
various application strategies. In any event the result
return metric suggested by Rock pro
- I.4 percent (99 lots). None of these are est
25x P. Koh md T. Walter, The pricing of urtseusoiled issues

Number of Lots (of one thousand shares each) in the Application Strategy

Fig. 3. Average initial-listing-day excess return for 66 new issues made between January 1973 and
June 1987 on the Singapore Stock Exchange for investment strategies in the range of one to 1,000
lots (of 1,000 shares each) after incorporating the actual rationing process adopted in each
new issue. The estimated t-statistics that these excess returns are greater than zero are all less
than 1.0 with the exception of that for an investment strategy of one lot, where the estimated
t-statistic is 1.51

le for each strategy,

,+Si(N,-ai . ,)-I, 1.
T-FC
i .s -Ri
3 N,
l
1

is the allocation received in issue i for strategy s, and other terms


are as prkviously defined.
erage returns are in the
lots). The jumps in the
e probability of allocation
uently use to ration shares
reduces returns significantly
one: the t-statistic on the
ares in each new
F. Koh md T. Walter, The pricing of ~~seuso~ed issues 259

Table 1
Correlations between initial-listing-day excess returns and the application and allocation patterns
in 38 new issues made between January 1973 and June 1987 on the Singapore Stock Exchange for
which sufficient data exist to split total applications and allocations into subcategories based on
application size.

Demand by investors applying for


Correlations between 2,000 to 100,000 to
proportions applied for 99,000 shares 249,000 250,000 shares
or allocated to investors 1,000 shares (i.e., medium/ shares (i.e., or more (i.e.,
and initial-listing-day (i.e., small small medium large
excess returns investors) investors) investors) investors)

Proportions applied for - 0.888 - 0.363 - 0.030 0.27F


Proportions allocated to -- 0.064 - 0.415 0.173 0.357
-
Significant at 5 percent level, one-tailed test.

issue is 1.51.9 Adopting this strategy would have produced 54 positive returns
and only 12 negative returns. Recall however from fig. 2 that the probability of
receiving an allocation of overpriced securities is approximately three times
that of receiving an allocation in underpriced securities, and thus statistical
significance would be overstated by using a binomial test on the sign of the
initiai return.
Table 1 provides additional evidence on the bias in the allocation system
faced by the uninformed investor. Thirty-eight of the 66 new issues provide
sufficient data for this test. VJe are concerned with the question of whether
large- or small-investor applications and allotment patterns differ for issues
that are over- and underpriced. If the size of an investors application is a
reasonable proxy for his information, ocks analysis su;2ests there shoul
a negative correlation between underpricing and the proportion of an issue
subscribed for and allocated to small (uninformed) investors. This association
is caused where informed investors withdraw from overpriced issues (negative
initial-listing-day excess returns) and thus cause a high proportion of the issue
to go to the uninformed, but swamp the underpriced
(positive initial-listing-day excess returns) and thus ca
the issue to go to the u
should dominate the und
between underpricing a
receive. inally, general
by a strong correlation

Skewness coefficients for g. 3 are in the range of - 0.11 to 0.72 a suggest return.\ arc
generally positively skewe
260 F. Koh urui T. Walter, The pricing 01 unseasoned issues

The average underpricing for the 38 issues for which sufficient data exist to
determine both application and allotment patterns is 34.7 percent. These
issues are on average oversubscribed 40 times, with a range of 2.2 to 248.1.
The Spearman rank correjlation between oversubscription levels and initial-day
returns is 0.952, which is significant at 1 percent.
In general the correlations in table 1 are significant and in the expected
direction. There is a negative correlation of - 0.088 between the proportion of
an issue applied for by small investors and initial-day returns. This negative
correlation is much more pronounced and is statistically significant (the
correlation of -0.363 is significant at 5 percent) for medium/small investors.
Small investors application strategies tend to be inversely related to the
success of the issue. Recall however that there is a systematic preference in the
allocation system for small investors and that on average new issues are
underpriced. These factors produce a lower negative correlation (- 0.064) for
small investors between allocated proportions and returns than between appli-
cation proportions and returns. Small (naive) investors application strategies
are cushioned by the allocation process. lo The applications of large investors
are positively and significantly correlated (0.275) with the issues outcome, as
expected. Large investors follow wealth-increasing application strategies at the
small investors expense?
These correlations do not perfectly capture the responsiveness of investors
in the various size categories to expected underpricing. The highly significant
correlation between oversubscription levels and initial-listing-day excess re-
turns is not driven solely by demand from a particular class or category of
investor; rather, it is a phenomenon that pervades the applications of aft,
investor classes. It is less pronounced, however, for small investors and more
pervasive for large investors.
able 2 explores the issue of investor responsiveness in more detail. Using
the same size-of-application definitions for small and large investors employed
in table 1, we calculate the proportion that total shares applied for by
investors in each category bears to the total shares offered. This proportion is
used as the dependent variable in four regressions (i.e., four size-of-application
investor categories) in which initial-day returns are the independent variable.
The dependent variable, which is a subscription rate by category, is a measure
of the extent to which investors in a particular size-of-application class are

There is always the possibility that informed investors might attempt to take advantage of the
preferential allocations afforded small applicants by breaking up their purchases into smaller lot
sizes. Indeed this practice occurred in the early years of the SSE. It is now illegal. howvcr. to
submit multiple applications. Further, the prospectus states that all applications bv an investor arc
declared void when an investor submits multiple applications. The cvidcncc in table 1 is consistent
with relativeIy little gaming of the allocation mechanism by informed investors.
The results in fig. 1 are insensitive to different definitions of boundaries for application
strategy size.
E Koh and T. Walter, The ; ricing of uns xS
L ortea isstres 261

Table 2
Regression results for four regressions that employ the initial-listing-day return as the independent
variable and subscription level achieved within various subcategories of the total application pool
as the dependent variable for 38 new issues made between January 1973 and June 1987 on the
Singapore Stock Exchange for which sufkient data exist to split total applications into various
subcategories based on application size.
--
Demand by investors applying for
2,OC! to 100,000 to
99,000 shares 249,000 250,000 shares
1,000 shares (ix., medium/ shares (i.e., or more (i.e.,
Regression results and (i.e., small small medium large
related statistics investors) investors) investors) investors)

Estimated coefficient 10.102 13.234 23.112 93.408


T-ratio 4.582 5.355 5.071 5.195
R-square 0.368 0.443 0.417 0.428
T-ratio on difference
between the coefficient 4.599 4.418 3.790 -
for large investors and
other categories

able to respond to actual levels of underpricing. Small-investor class defini-


&ions serve as a proxy for uninformed demand. The theory predicts that the
estimated coefficient on small-investor subscription levels, which is a measure
of how responsive these investors are to actual underpricing, should be smaller
than the estimated coefficient on larger-investor categories. We also calculate
and report a t-statistic on the difference between the estimated coefficient for
the large-investor definition and smaller-investor definitions.
The evidence in table 2 is striking. Although small investors are responsive
to greater underpricing (the estimated coefficient, 10.102, is positive and
significant, t = 4.582), they are far less responsive than larger investors (coef-
ficient of 93.408, t = 5.195). Returns in these regressions are defined as the
natural log of first-day price over subscription price; thus a coefficient of
10.102 implies that small investors will increase their applications by 10.102
percent for each 1 percent underpricing. l2 By contrast large investors are
approximately nine times as responsive. The i-statistic on the differences in the
estimated small- and large-investor-group coefficient is The sensitivity
with qwhichlarge ;nvestors respond to unde g is evi consistent wit
rational behavior in the initial-public-offer rnarke contrasts wit

Rock (1986, p. 185) argues that it is essential to establish that uninformed demand expands as
issue price is reduced because unless an issuer can increase the chance of a full subscription in an>
state of the world by attracting uninformed investors to the offering, there is no point whatsoever
in pricing the shares at a discount. This evidence is consistent wit cman
uninformed investors.
262 F. Koh and T. Walter, The pricirlg of unseasoned issues

entators who view the market as being

a subscription price w
d alone Will fully su
el a rational issuer would not rice an issue below
scribe the issue, so
seen as an additional test of the descriptive validity

ir.*+lor demand for these 38 issues, and


into informed and uninformed demand by assuming that the size
a reasonable proxy for an investors access to information
e initially take the strictest definition of an uninformed
investor our data allow us to make, that is, we define uninformed investors to
those who apply for 1,000 shares. If observed uninformed demand is
an the total issue, the price at which uninformed investors alone will
scribe the issue must be below the actual subscription price, i.e., the
underpricing was insufficient to attract uninformed demand to subscribe the
issue fully. There are six cases in category. For the 32 other cases we
estimate the price at which uninfor demand alone will fully subscribe the
issue by employing the following
Across all issues, uninformed demand by investors in the smallest applica-
tion category a new issue expands by 10.102 percent for each 1 percent of
work back from the first-day (observed) market price to an
scription price by reducing the market price by ex

I 10.102.

nts and Finance Limited offered 5 million shares


last sale on the first day of trading was $S3.20.
lications for 1,000 shares were received from 18,740 investors: thus
million, 3.748 times the issue size. Using the

uce uninformed demand

nsistent with rational issuer


der reduces 20 out of

rice i5 ca e f rice
e3
Number of issues where the uninformed d alone fully subsc the issue f ative
levels of uninformed demand (in lots of hares) for 38 issues e between 1973
and June 1987 OR t mgapore Stock Exchange.

Number of issues where uninformed


Critical level of uninformed demand alone fully subscribes
demand in lots of 1, shares the issue

1 2oa
10 29
11 30
12 31
115 32
21 34
50 38

Using the strictest definition of uninformed demand allowed by our data produces 20 (out of
38) cases which are consistent with rational issuer behavior.
bAll 38 issues are characterized by rational issuer behavior if uninformed demand includes
applications up to 50,000 shares.

38 estimates of the price at which uninformed demand alone fully subscribes


the issue that are less than the actual issue price, that is, consistent with
rational issue behavior. y loosening the definition of uninforme
include larger applications for the 18 inconsistent issues, we caMate the
cut-off size of an application that would need to be included as a corn
of uninformed demand to produce an estimated price at which uninforme
demand alone fully subscribes the issue which is below the issue price. T
larger applications are divided by 13.234, which is the estimate of increase in
demand by investors in the range of 2,000 to 99.000 s
underpricing (see table 2). Table 3 contains these critic
demand.
It can be seen that all 38 issues are rationally priced provi ing uninformed
demand is defined to include investors applying for up to 50,000 shares.14
Such a definition is necessary in four cases. These four issues r
dollar applications ranging between
Twenty-nine issues are consistent wit
demand is define

potential way to
ation data in tab
shares are (comparatively)
264 F. Koh and T. Wulter, The pricing oj wnsemoned issues

Awerags
Initial O-02
Litting
Day
Exe= 0.01
Return

-0.01

-0.02
200 300 400 580 600 700 800 900 1
Number of Lots bf one thousandshareseach) in the Application Strategy

Fig. 4. /iwrqge initia!-!istmg-day excess return for 66 new issues made between January 1973 and
June 1987 on the Singapore Stock Exchange split by underwriter identity into 25 issues underwrit-
ten by the Development Bank of Singapore, Ltd. (DBS), 22 issues underwritten by Wardley
Limited, United Chase Merchant Bankers Limited, and Singapore International Merchant Bank
Limited (frequent issuers), and 19 issues underwritten by others (otL:r issuers) for investment
strategies in the range of one to 1,OQOlots (of 1,000 shares each) after incorporating the actual
rationing process adopted in each new issue. The estimated t-statistics that these excess returns are
greater than zero are (i) all less than 1.2 tor the DBS issues, (ii) in the range of 1.01 to 1.54 for the
frequent issuers, and (iii) all less than 0.13 and generally negative for the other issuers.

ank of Singapore Ltd. (DBS) underwrote or jointly


rote 25 new issue ing the period studied. As revealed in fig. 4, a
issues would not have produced statistically
es underwritten by the Frequent Issuers
ankers Limited, Singapore International Merchant
F. Koh und T. W.lter, issues 265

Av
Ini

Number of Lots (of one thousandshareseach) in the Application Strat

Fig. 5. Average initial-listing-day excess return for 66 new issues made between Januaq 1973 and
June 1987 on the Singapore Stock Exchange split by size of the issue into the 22 largest issues, the
medium issues, and the smallest issues for in- Jstment strategies in the range of one to 1,000 lots
(of 1,000 shares each) after incorporating the actual rationing process adopted in each new issue.
The estimated t-statistics that these excess returns are greater than zero are (i) ah less than 0.95 for
the huge issues, (ii) less than 0.61 and generally negative for the medium issues, and (iii) in the
range of 0.63 to 1.33 for the small issues.

cant returns l6 after rationing is into


The smaller issues are generally most u
is most overpriced, given the actual rationing processes adopte
lots of 1,000 and 2,000 shares, the average listing-d
issues are less than 1 percent. The subdivision d
achieved only after the size of all issues is known.
fair-game requirements in that an ex ante investmen
not feasible.

mo
etwee~
investors

16
re iss
med -siz ivel
266 F. Koh ad T. Walter. The pricirtg of unseasorted issues

States an elsewhere is impossible because information on th


process adopte erwriters and issuers is not observable. (
derwriters are reluctant to release these data because they may s
allocation process.)
ew-issues market in Singa ore is unbias
me number of shares ve an equal chance o
of allocation adopted on an issue-by-issue basis
ore thus provides the oppc:ftunity to test the

ocks major empirical implications. Uninformed in-


tally different from the risk-free rate of return.
for the apparent excess returns on unseasoned
n to be applied far more stringently in under-
priced (kc., positive initial-listing-daye excess ret s) than in overpriced (i.e.,
negative initial-listing-day excess returns) issues. ock argues that this bias in
rationing produces an equilibrium offer price with a finite discount sufficient
to attract uninformed investors to the issue. Our results are consistent with
this proposition for both the total sample and for subdivisions based on
nderwriter identity and issue size. Additional analysis suggests that issuing
companies price new issues rationally in the sense that the actual issue price is
set above an estimate of the price at which uninformed demand alone would
subscribe an issue.

The new-issues market in Singapore


etween the incorporation of the Singapore Stock Exchange (SSE) in 1973
June 1987 there were 70 new public issues. Sixty-one of these were under-
in the sense that if application costs and rationing are ignored the
ay price (measured by the last sale price) exceeds the subscription

r 66 of the 70 new issues

generally does not earn


the allocation process.
Another important characteristic of the new-issue
that an application for shares in a new issue must be acco
in the form of a bankers draft, a bank chec
order. (In one case personal checks were pe
types involve funds being actually withdrawn fro
count and accordingly incur the opportunity cost o
An application constitutes an offer by the applic
company. As such it can be withdrawn at any stage prior to acceptant
issuing company. Although the law allows an applicant to withdraw a
this is very rarely done in Singapore initial public offerings.
New issues in Singapore proceed in accord with the general prin
ritish company law and are of the firm-commitment type. in which t
and its investment bank (usually the underwriter) agree on the price an
quantity of securities to be issued.
These amounts are detailed in a prospectus and cannot be than
issuing company during the issue. he prospectus contains t
form and discloses relevant invest nt information for the issue
accounting and other information on past perfor
earnings forecast by directors (with auditor comments),

are reserve
268 F. Koh and T. Walter, The pricing of unseasoned issues

a way as to ensure t icants for a certain n


ares have an equal chance of obtaining shares. This pi-ocess
involve balloting (i.e., a r dom selection from all applications).
is required it is conduct in public and is overseen by representatives of the
uthority of Singapore ( AS), and the issuing company

ere oversubscription occurs the investment bank or underwriter, having


determined actual subscription patterns, recommends various feasible alloca-
systems to the issuer. These can involve combinations of full allocation,
pro-rata allocation, and balloting. Following the selection of an allocation
issuing firm, a public announcement describes the method
example of a complete-disclosure and of a partial-disclosure
nt are given below.) P complete disclosure differs from a partial
isclosure in that the former allows both the application and allotment
patterns to be reconstrticted. With a partial disclosure only the probability of
an allocation, conditional on an application of a particular size, can be
determined. Although the allocation basis adopted systematically gives pro-
portionally more shares to small investors (see fig. 2), applicants for the same
number of shares are treated equally. Different firms and underwriters adopt
different schemes in deriving allocation categories, which depend in part on
actual subscription patterns received. Apart from the general bias toward
small investors, it seems unlikely that the basis of allocation for any particular
issue can be predicted [see Koh and Walter (1987)], though some application
strategies seem (at this stage) undesirable. For instance, it seems better to

and 20 percent of
lying for quotatio
expected to meet the following criteria:

t has a paid-up ca ital of at least $


(2) At least $1500,000 or 25% of the issue al (whichever is
the greater) is in the hands of not less than 500 shareholders.

(3) minimum percentage of the issued and paid-up capital is in the han
areholders each holding nsi less than 500 shares and not more
10,000 shares:

Nominal value of issued and


paid-up capital inimum percentage
less than $50 million 20%
$50 million and above and 15% or $10 million
less than $100 million whichever is the greater
$100 million and above 10% or $15 million
whichever is the greater

In complying with this distribution, the following are to be exclu

(a ) oldings by parent, or companies deemed to be related by virtue of


Section 6 of the Companies Act.
(b) Holdings by directors (including those of persons esignated directors
under the Companies Act).
270 F. Koh and T. Wdter, The pricing of unseasoned issues

etailers, for example, should have larger small-investcr participation than,


say,

Sam
ANNOUNCEMENT

AVIMO SINGAPORE LIMITED

OFFER FOR SALE OF 18,750,OOOSHARES OF $0.20 EACH


AT $1.75 PER SHARE

The Ikzctors of Avimo Singapore Limited are pleased to announce that at the close of the
Application List at 12 noen, 21 April, 1987, there were 108,787 applicants applying for
1,754,99O,Ooc) shares, total!Ing $3,071,232,5OO. The offer for sale is approximately 104 times
subscribed compared with the 16.875,OOOshares available to the public for subscription at $1.75
per share.

The following table sets out tile details on the applications received and the bask of allotment:

No. of
Denomi- shares
nations Total no. allot ted Percent
of shares ot shares Percent of per succ- of the
applied No. of applied total Balloting essfJ1 No.of offer
for applicants for applications ratio applicant shares for sale
cOOO1 (000) (%1; (000) (000) (Tr)
______- .--- ~ . ______ --____ ---
l-4 93,207 --103.719 5.9 1:27 1 3,391 20.1
5-9 2,022 10,784 06 1:12 1 16X 1.0
10-49 7,464 88,404 5.0 2: 15 1 935 5.9
W-99 : pz1z3
i,\,// ?QC
56,Jt?_l f2 519 1 610 3.6
100-199 3,629 367,300 2b:9 - 1 3,629 21.5
2CW299 134 29,418 1.7 - 2 268 1.6
300-399 19 5,737 0.3 - 3 57 0.4
400-499 10 4 W 0.2 - 4 40 0.2
5OO-749 633 317:61; 18.1 - 5 3,165 18.8
750-999 9 7,850 0.5 - 6 54 0.3
1.OOO-1,999 482 $86,133 27.7 - 7 3,374 20.0
2.OOO--2,999 44 91,530 5 - 1I 484 2.9
?,WO--3,999 5 15,100 0:; - 14 70 0.4
3 12,000 0.7 - 16 48 0.3
21 105,013 0.0 _- 1x 37n 2.2
6,Wl-- 7,999 I 6,000 0.3 - 20 20 0.1
KOOO-9.999 I 8,000 0.5 -- 24 24 0.1
B0,04io- 10.0~~I --A-- 0 002 2.3 .- 25 100 -- 0.6
14~8,787 1.754.990 100.0 16.875 100.0
--
The Directors of Avi 0 Singapore Limited wish plicaats for their confidence in the
Company. Unsucces lkations and refun (partially) successful app
will be sent to applicants as soon as possible.

Issued for and on behalf of Avimo Singapore Limited

N.M. Rothschild & Sons (Singapore) Limited


22 April I987

e Announcement,
PRESS RELEASE

HQTEL TAI-PAN LIMITED


(Incorporated in the Republic of Singapore)

NEW ISSUE OF 22500,000 SHARES QF $1.00 EAC

The Directors of Hotel Tai-Pan Limited (The Company) are pleased to announce that at the
time of the closing of the Application List at 2:00 p.m. on 23rd July 1981, a total of 74,148
applications in respect of 288,463,OOOshares in the company had been received. T
monies amounted in aggregate to $375,001,900. The issue was therefore subscribed approximately
13 tumes.

No. of shares
allot ted per
successful
No. of shares applied for Balloting ratio application
woo 1:lO 1,600 -
2,000 to 5,000 I:5 1,000
6,000 to 10,000 1:2 1.OOO
?l,m! to 2$000 no balloting 1.000
21,rDOOto 50,000 9, 2.000
Sl.,OOOto 100,m 9. 4,000
101,000 to 150,m 9. 5,000
,r
315i,wOto 200,000 9,084)
201,000 to 300,000 ,* 14,000
3u1,OOO to 400,000 9) 16,000
401,000 to 500,000 9, 24,000
501,000 to 5CjL900 .1 30,000
I,OOO,OOand abtive .) 55,000

Every effort will be made to ensure the cxpe ious processing of succc
return of the application onies to unsucce~ i and partially successfu

Issued for and on be


272 F. Koh and T. Wuker, The pricirtg of unsecrsoned issues

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Higham, 1986, The performance of unseasoned new equity issues-cum-stock
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Ibbotson, R.G., 1975, Price perform.ance of common stock new issues. Journal of FinanciaI
Economics 2,235-272.
Ibbotson, R.G. and J. Jaffe, 1975, Not issue markets, Journal of Finance 30, 1027-1042.
Koh, F. and T. Walter, 1987, Ahocation patterns for new issues in Singapore, Working paper
(National University of Singapore).
tter, J., 1984, The hot issues market of 1980, Journal. of Business 57, 215-240.
Rock, IL, 1956, Why new issues are underpriced, Journal of Financial Economics 15, 187-212.
Smith, C.W., 1986, Investment banking and the capital acquisition process, Journal of Financial
Economics 15, 3-29.