Considerations for listing choice: IPO or RTO?
Keywords:
Initial public offering, Reverse takeovers, Backdoor listing, Listing regulationsAbstract
The dual paths to stock exchange listing can be direct through an initial public offering (IPO) or indirect through a reversed takeover (RTO). This paper questions the value of existing regulations in imparting the quality of firms in IPOs and RTOs by comparing listing rules in Singapore and Thailand and then using sample firm accounting and market data between 2008-2015. The paper examines the short and long-term return and liquidity responses to RTO firms. All in all, Singapore direct listing rules offer more flexibility in listing than Thai listing rules. However, both markets require RTOs firms to reapply for re-listing and must meet the same listing requirement as IPO firms. The empirical result suggests RTO firms do not perform differently compared to IPO firms in terms of key financial ratio performance. There is no evidence that RTO firms produce substantially different buy-and-hold return compared to the market. In terms of liquidity, the paper finds that percentage bid-ask spreads post-RTO transactions are significantly below pre-RTO levels suggesting reduction in asymmetric information and likely leading to increased turnover in Singapore RTO firms and increased free-float in Thai RTO firms.
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