Do IPOs matter for price limits? Evidence from Taiwan

• The sentiments of investors tend to be aroused by either price limits or IPOs.
• We explore whether price limits are affected by IPOs.
• Price limits often occur in firms with inferior financial performance.
• IPO firms may manipulate share prices through the price limit system in Taiwan.
• Investors holding IPO shares must be cautious even after the issuance of IPOs.

Given that the price limit hit is prominently displayed on the screen of the Taiwan Stock Exchange (TWSE), we explore whether price limits occur in initial public offering (IPO) firms according to the assumption that the sentiments of investors tend to be aroused by firms issuing IPOs and the price limit hit. Results reveal that price limits often occur in IPO stocks. The above phenomena do not only occur during the IPO issuing year, but may also be extended to the following year. We infer that several IPO firms tend to manipulate share prices, especially for technology and high-underpricing IPO firms. The results of this study may be interpreted from the sentiments of investors via the viewpoint of behavioral finance.