How to evaluate an IPO, according to Houston researchers

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In emerging markets, pricing — not reputation — drives the partnership between underwriter and IPO. Photo via business.rice.edu

Many investors assume they can judge the strength of an IPO based on the reputation of the underwriter supporting it.

However, a recent study by Rice Business professors Anthea Zhang and Haiyang Li, along with Jin Chen (Nottingham University) and Jing Jin (University of International Business and Economics), proves this is only sometimes true — depending on how mature the stock exchange is.

Getting your company listed on the stock market is a big step. It opens new opportunities to raise money and grow the business. But it also means facing increased regulations, reporting requirements and public scrutiny.

To successfully launch an initial public offering (IPO), most companies hire “underwriters” — financial services firms — to guide them through the complex process. Because underwriters have expertise in valuations, filing paperwork and promoting to investors, they play a crucial role in ushering companies onto the market.

In well-established markets like the New York Stock Exchange (NYSE), an underwriter’s reputation carries immense weight with investors. Top-tier banks like Goldman Sachs have built their reputations by rigorously vetting and partnering with only the most promising companies. When Goldman Sachs takes on the role of underwriter, it sends a strong signal to potential investors that the IPO has met stringent standards. After all, a firm of Goldman’s caliber would not risk tarnishing its hard-earned reputation by associating with subpar companies.

Conversely, IPO firms recognize the value of having a prestigious underwriter. Such an association lends credibility and prestige, enhancing the company’s appeal. In a mature market environment, the underwriter’s reputation correlates to the IPO’s potential, benefiting both the investors who seek opportunities and the companies wanting to make a strong public debut.

However, assumptions about an underwriter’s reputation only hold true if the stock exchange is mature. In emerging or less developed markets, the reputation of an underwriter has no bearing on the quality or potential of the IPO it pairs with.

In an emerging market, the study finds, investors should pay attention to how much the underwriter charges a given IPO for their services. The higher the fee, the riskier it would be to invest in the IPO firm.

To arrive at their findings, the researchers leveraged a unique opportunity in China’s ChiNext Exchange. When ChiNext opened in 2009, regulations were low. Banks faced little consequence for underwriting a substandard IPO. Numerous IPOs on ChiNext were discovered to have engaged in accounting malpractice and inaccurate reporting, resulting in financial losses for investors and eroding confidence in the capital markets. So, for 18 months during 2012-2013, ChiNext closed. When it reopened, exchange reforms were stricter. And suddenly, underwriter reputation became a more reliable marker of IPO quality.

“Our research shows how priorities evolve as markets mature,” Zhang says. “In a new or developing exchange without established regulations, underwriter fees paid by IPO firms dictate the underwriter-company partnership. But as markets reform and mature, reputation and quality become the driving factors.”

The study makes a critical intervention in the understanding of market mechanisms. The findings matter for companies, investors and regulators across societies, highlighting how incentives shift, markets evolve and economic systems work.

The research opens the door to other areas of inquiry. For example, future studies could track relationships between underwriters and companies to reveal the long-term impacts of reputation, fees and rule changes. Research along these lines could help identify best practices benefiting all market participants.

“In the future, researchers could explore how cultural norms, regulations and investor behaviors influence IPO success,” says Li. “Long-term studies on specific underwriter-firm pairs could reveal insights into investor confidence and market stability. Understanding these dynamics can benefit companies, investors and policymakers alike.”

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This article originally ran on Rice Business Wisdom and was based on research from Yan “Anthea” Zhang, the Fayez Sarofim Vanguard Professor of Management – Strategic Management at Rice Business, and Haiyang Li, the H. Joe Nelson III Professor of Management – Strategic Management at Rice Business.

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People tend to have stronger reactions to unexpected news, so news that meets the public’s expectations of a company can go unnoticed. Photo via Getty Images

Houston research: How best to deliver unexpected news as a company

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According to Forbes, the volume of mergers and acquisitions in 2021 was the highest on record, and 2022 has already seen a number of major consolidation attempts. Microsoft’s acquisition of video game company Activision Blizzard was the biggest gaming industry deal in history, according to Reuters. JetBlue recently won the bid over Frontier Airlines to merge with Spirit Airlines. And, perhaps most notably, Elon Musk recently backed out of an attempt to acquire Twitter.

It can be hard to predict how markets will react to such high-profile deals (and, in Elon Musk and Twitter’s case, whether or not the deal will even pan out). But Rice Business Professor Haiyang Li and Professor Emeritus Robert Hoskisson, along with Jing Jin of the University of International Business and Economics in Beijing, have found that companies can take advantage of these deals to buffer the effects of other news.

The researchers looked at 7,575 mergers and acquisitions from 2001 to 2015, with a roughly half-and-half split between positive and negative stock market reactions. They found that when there’s a negative reaction to a deal, companies have two strategies for dealing with it. If it’s a small negative reaction, companies will release positive news announcements in an attempt to soften the blow. But when the reaction is really bad, companies actually tend to announce more negative news afterward. Specifically, companies released 18% less positive news and 52% more negative news after a bad market reaction.

This may seem counterintuitive, but there’s a method to the madness, and it all has to do with managing expectations. If people are lukewarm on a company due to a merger or acquisition, it’s possible to sway public opinion with unrelated good news. When the backlash is severe, though, a little bit of good PR won’t be enough to change people’s minds. In this case, companies release more bad news because it’s one of their best chances to do so without making waves in the future. If people already think poorly of a company due to a recent deal, more bad news isn’t great, but it doesn’t come as a surprise, either. Therefore, it’s easier to ignore.

It might make more sense to just keep quiet if the market reaction to a deal is bad, and this study found that most companies do. However, this only applies when releasing more news would make a mildly bad situation worse. If things are already bad enough that the company can’t recover with good news, it can still make the best out of a bad situation by offloading more bad news when the damage will be minimal. Companies are legally obligated to disclose business-related news or information with shareholders and with the public. If it’s bad news, they like to share it when the public is already upset about a deal, instead of releasing the negative news when there are no other distractions. In this case the additional negative news is likely to get more play in the media when disclosed by itself.

But what happens when people get excited about a merger or acquisition? In these cases, it also depends on how strong the sentiment is. If the public’s reaction is only minimally positive, companies may opt to release more good news in hopes of making the reaction stronger. When the market is already enthusiastic about the deal, though, companies won’t release more positive news. The researchers found that after an especially positive market reaction to a deal, companies indeed released 12% less positive news but 56% more negative news. Also, one could argue that the contrasting negative news makes the good news on the acquisition look even better. This may be important especially if the acquisition is a significant strategic move.

There are several reasons why a company wouldn’t continue to release positive news after a good press day and strong market reaction. First of all, they want to make sure that a rise in market price is attributed to the deal alone, and not any irrelevant news. A positive reaction to a deal also gives companies another opportunity to disclose bad news at a time when it will get less attention. If the bad news does get attention, the chances are better that stakeholders will go easy on them — a little bit of bad press is forgivable when the good news outshines it.

Companies may choose to release no news after a positive reaction to a merger or acquisition, the same way they might opt to stay quiet after backlash. They’re less likely to release positive news when stakeholders are already happy, preferring to save that news for the next time they need it, either to offset a negative reaction or strengthen a weak positive reaction.

Mergers and acquisitions can produce unpredictable market reactions, so it’s important for companies to be prepared for a variety of outcomes. In fact, Jin, Li and Hoskisson found that the steps taken by companies before deals were announced didn’t have much effect on the public’s reaction. They found that it’s more important for companies to make the best out of that reaction, whatever it turns out to be.

The researchers also found that, regardless of whether the market reaction was positive or negative, as long as the reaction was strong, companies could use the opportunity to hide smaller pieces of bad news in the shadow of a headline-making deal. Overall, the magnitude of the reaction mattered more than the type of reaction. People tend to have stronger reactions to unexpected news, though, so companies prefer to release negative news when market expectations are already low.

These findings are relevant beyond merger announcements, of course; they also point to strategies that could be useful in everyday communications. A key takeaway is that negative information is less upsetting when people already expect bad things — or when it comes after much bigger, and much better, news. Bad news is always hard to deliver, but this research gives us a few ways to soften the blow.

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This article originally ran on Rice Business Wisdom and was based on research from Jing Jin, Haiyang Li and Robert Hoskisson.

Firms looking to expand globally need to ensure that their organizational resources are adaptable to new markets. Getty Images

Houston startups planning to go global need to prioritize adaptability, researchers find

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When foreigners invest in emerging markets, the prospect for those markets' local businesses looks bright. The payoffs for a country's companies can range from injections of foreign capital to better managerial talent, technological sophistication and international know-how. But does foreign investment ever push local firms to venture into international projects of their own?

Rice Business professor Haiyang Li looked closely at the ripple effects of foreign investments, and concluded it all depends on the local businesses' adaptability. That — and their appetite for risk.

Together with Xiwei Yi of Peking University and Geng Cui of Lingan University, Hong Kong, Li launched a large-scale study of Chinese manufacturers to better understand how multinational investment in domestic companies influences the global market.

The subject was ripe for analysis. Over the past decade, more and more companies in China and other emerging markets have been testing the waters of direct investment in other countries in sectors as varied as food and beverages, apparel, electronics and transportation equipment.

Li's team hypothesized that these emerging market companies were leveraging benefits that foreign investment had ferried into their home markets. This investment, the researchers theorized, had brought in useful resources and skills, which helped ease the local companies into international business markets.

To confirm this, the team needed to test whether the converse was true: Might information gained from foreign investors actually dull a local firm's interest in branching out overseas? Maybe the risks of that type of venture — which are higher for firms in emerging markets — would seem too stark.

To find out, the researchers first vetted the literature on inward and outward investment activities. How, they wanted to know, did domestic firms interact with foreign players in the technology or product importing process? In equipment manufacturing? In franchising and licensing, mergers and acquisitions and activities such as setting up subsidiaries?

Working with a global research company, Li and his colleagues next surveyed 1,500 Chinese businesses in the food, clothing, electronics and vehicle industries. (Firms in finance, banking, natural resources and business services were ruled out because of their government ties, and also because such organizations usually use fewer resources, which made them harder to evaluate.)

Each company that took part in the survey rated how much they engaged with foreign investors in activities such as importing products and services or forming joint ventures. They also indicated if dealing with foreign direct investment had brought them foreign capital, advanced manufacturing know-how, managerial experience or competitive insight into overseas business.

The researchers also measured the "fungibility" of these firms' resources — in other words, how easily could their organizational, cultural and technological resources be adapted to various geographical settings?

Finally, managers rated how risk-prone they thought their firms were.

After Li and his coauthors processed the answers, they found several links between foreign investment in domestic firms and local companies' internationalization efforts.

First, there was a positive relationship between the local gains from foreign investment and a firm's interest in internationalization projects. While this effect was indirect, it was amplified when foreign investment gave a firm new capabilities that made it more adaptable. In other words, the Chinese companies whose contact with foreign multinationals made them more adaptable in general were better positioned to prosper in ventures abroad.

This stands to reason, the researchers note. That's because by its very nature foreign investment sparks awareness of new opportunities: every business trip, plant visit or negotiation with foreign partners is a hands-on lesson in international trade.

But the researchers also uncovered a significant downside to foreign investment for local Chinese firms. When a project was considered high-risk, such as a merger or establishment of a wholly owned subsidiary, the local firms were less prone to venture abroad. This adverse effect was worse for firms that labeled themselves risk-averse, probably because exposure to foreign investors only made the risks of internationalizing clearer.

These findings add important detail to the way foreign investment can affect their local partners' own international plans — for good and ill. Already, businesses in emerging markets are used to optimizing resources, wrangling diverse idioms and artisans and adapting logistically to get their products to market. That nimbleness, Li and his colleagues propose, should also be seen as a globalization tool. For businesses in emerging markets, the researchers conclude, day-to-day technical ability is actually less important than cultural and organizational flexibility — and applying lessons learned from foreign investors to their own projects abroad.

In other words, for firms in emerging markets, globalization is not just a path to new markets. It's a way to study interactions with foreign firms while on their home turf – and learn how to apply those lessons abroad.

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This story originally ran on Rice Business Wisdom.

Haiyang Li is Area Coordinator and Professor of Strategic Management at Jones Graduate School of Business at Rice University.

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Houston residents rank economy as biggest problem, new Kinder survey shows

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The region’s economy tops the list of concerns of Houston-area residents surveyed by Rice University’s Kinder Institute for Urban Research.

Respondents in the Kinder Houston Area Survey, which questioned nearly 9,000 residents of Harris, Fort Bend and Montgomery counties, cite the regional economy as the area’s “biggest problem.”

Shrinking confidence in job opportunities and growing household financial pressures fueled the grim economic outlook:

  • The share of residents rating job prospects as “good” or “excellent” fell by more than 25 percentage points, the sharpest single-year decline since the 1980s.
  • Seventy-nine percent of those earning less than $25,000 said they’d be unable to cover an unplanned $400 expense. That was up from 72 percent last year. In the $50,000-to-$99,999 category, the figure was 39 percent, up from 30 percent last year.
  • More than 20 percent of residents said their financial status was worse than it was 12 months earlier.

“These challenges were particularly notable among lower- and middle-earning households,” according to a report about the survey.

Dan Potter, co-director of the institute’s Houston Population Research Center, says the annual survey “provides community leaders and the public with a map of where we’ve been on key issues, where we are now, and what’s of looming importance. It allows everyone to work together toward a better future for our city and our region.”

Houston-based Oxy officially announces CEO transition, names successor

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Houston-based Occidental (Oxy) has officially announced its longtime CEO's retirement and her successor.

Oxy shared that Vicki Hollub will retire June 1. Reuters first reported Hollub's plan to retire in March, but a firm date had not been set. Hollub will remain on Oxy's board of directors.

Richard Jackson, who currently serves as Oxy's COO, will replace Hollub in the CEO role.

“It has been a privilege to lead Occidental and work alongside such a talented team for more than 40 years," Hollub shared in a news release. "Following the recently completed decade-long transformation of the company, we now have the best portfolio and the best technical expertise in Occidental’s history. With this strong foundation in place, a clear path forward and a leader like Richard, who has the experience and vision to elevate Occidental, now is the right time for this transition. “I look forward to supporting Richard and the Board through my continued role as a director.”

Hollub has held the top leadership position at Oxy since 2016 and has been with the energy giant for more than 40 years. Before being named CEO, she served as COO and senior executive vice president at the company. She led strategic acquisitions of Anadarko Petroleum in 2019 and CrownRock in 2024, and was the first woman selected to lead a major U.S. oil and gas company.

Hollub also played a key role in leading Oxy's future as a "carbon management company."

Jackson has been with Oxy since 2003. He has held numerous leadership positions, including president of U.S. onshore oil and gas, president of low carbon integrated technologies, general manager of the Permian Delaware Basin and enhanced oil recovery oil and gas, vice president of investor relations, and vice president of drilling Americas.

He was instrumental in launching Oxy Low Carbon Ventures, which focuses DAC, carbon sequestration and low-carbon fuels through businesses like 1PointFive, TerraLithium and others, according to the company. He also serves on the Oil and Gas Climate Initiative’s Climate Investment Board and the American Petroleum Institute’s Upstream Committee. He holds a bachelor's degree in petroleum engineering from Texas A&M University.

Jackson was named COO of Oxy in October 2025. In his new role as CEO, he will also join the board of directors, effective June 1.

“I am grateful to be appointed President and CEO of Occidental and excited about the opportunity to execute from the strong position and capabilities that we built under Vicki’s leadership,” Jackson added in the release. “It means a lot to me personally to be a part of our Occidental team. I am committed to delivering value from our significant and high-quality resource base. We have a tremendous opportunity to focus on organic improvement and execution to deliver meaningful value for our employees, shareholders and partners.”

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This article first appeared on EnergyCapitalHTX.com.

Rice Brain Institute awards seed grants for dementia, Alzheimer’s research

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The recently established Rice Brain Institute awarded 12 seed grants last month to support research on dementia, Alzheimer’s disease, Parkinson’s disease and other neurological disorders.

The grants are part of the Rice DPRIT Seed Grant Program, which aims to help faculty members generate preliminary data, test and teams that would be supported under the Dementia Prevention and Research Institute of Texas.

The DPRIT was approved last year to provide $3 billion in state funding over a 10-year span for research on dementia prevention and other neurological conditions. It will be modeled after the Cancer Prevention and Research Institute of Texas (CPRIT), which has awarded nearly $4 billion in grants since 2008.

“DPRIT is a historic initiative with transformative impact potential and at Rice we are very well equipped to contribute to its mission and help make Texas a leader in brain health and innovation,” Behnaam Aazhang, a Rice professor of electrical and computer engineering and director of the Neuroengineering Initiative and the RBI, said in a news release.

The Rice DPRIT Seed Grant Program is supported by the RBI and the Educational and Research Initiative for Collaborative Health (ENRICH) office at Rice. Most of the funding came from Rice's Office of Research, with a contribution from Rice's Amyloid Mechanism and Disease Center, which also launched last year.

A number of the teams include collaborators from Houston's Texas Medical Center, including Baylor College of Medicine, University of Texas Medical Branch and the McGovern Medical School at UTHealth Houston.

The 12 teams are:

  • Keya Ghonasgi, assistant professor of mechanical engineering at Rice. Ghonasgi's research addresses the high risk of falls among people with different types of dementia and aims to develop a personalized, home-based fall-prevention approach using textile-integrated wearable sensors.
  • Luz Garcini, associate professor of psychological sciences at Rice, and Hannah Ballard, associate director of community and public health at the Kinder Institute for Urban Research at Rice. Garcini and Ballard's research looks at barriers and facilitators to early detection of Alzheimer’s disease in diverse, medically underserved urban communities and focuses on populations that experience late diagnosis, including Hispanic/Latino groups.
  • Lei Li, assistant professor of electrical and computer engineering at Rice, and Pablo Valdes, assistant professor of neurosurgery at UTMB. Li and Valdes' project develops a noninvasive, bedside imaging approach to monitor brain blood flow and oxygenation in patients recovering from stroke or brain surgery using photoacoustic imaging through a specialized transparent skull implant.
  • Cameron Glasscock, assistant professor of biosciences at Rice. Glasscock's project addresses repeat expansion disorders, such as Huntington’s disease and myotonic dystrophy, and focuses on stopping DNA instability before repeats reach a disease-causing threshold.
  • Raudel Avila, assistant professor of mechanical engineering at Rice. Avila's project focuses on everyday health factors such as nutrition, hydration and brain blood flow and how they influence brain aging long before symptoms of dementia appear.
  • Isaac Hilton, associate professor of bioengineering at Rice, and Laura Lavery, assistant professor of biosciences at Rice. Hilton and Lavery's project uses precise CRISPR-based gene regulation to target multiple genetic drivers of neuronal damage in Alzheimer’s.
  • Quanbing Mou, assistant professor of chemistry at Rice, and Qing-Long Miao, assistant professor of neurology at Baylor College of Medicine. Mou and Miao's project aims to develop a gene-regulation therapy for childhood absence epilepsy by restoring activity of the CACNA1A gene.
  • Momona Yamagami, assistant professor of electrical and computer engineering at Rice, and Christopher Fagundes, professor of psychological sciences at Rice. Yamagami and Fagundes' project addresses the physical and mental health challenges faced by spouses caring for partners with Alzheimer’s disease and related dementias and aims to develop algorithms to determine the optimal timing and frequency of supportive text messages.
  • Han Xiao, professor of chemistry at Rice. Xiao's project aims to improve the delivery of antibody therapies to the brain using a noninvasive, light-based approach that temporarily opens the blood–brain barrier.
  • Lan Luan, associate professor of electrical and computer engineering at Rice. Luan's project investigates how tiny blood-vessel injuries in the brain, known as microinfarcts, contribute to dementia.
  • Natasha Kirienko, associate professor of biosciences at Rice. Kirienko's project targets a shared cause of neurodegeneration, impaired mitochondrial cleanup, and aims to identify an existing antidepressant that could be repurposed to protect neurons in diseases like Alzheimer’s and Parkinson’s.
  • Harini Iyer, assistant professor of biosciences at Rice. Iyer's project will observe zebrafish to investigate how the brain’s primary immune cells become improperly activated in neurological disorders, leading to the loss of healthy neurons and cognitive impairment.

The RBI also named the first four projects to receive research awards through the Rice and TMC Neuro Collaboration Seed Grant Program in January. Read more about those projects here.

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