Articlebronze2008

Underpricing, Overhang, and the Cost of Going Public to Preexisting Shareholders

39 citations0/0 files storedJournal of Business Finance &amp Accounting

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

Abstract: IPO underpricing has been extensively studied; however, its impact on the wealth of preexisting shareholders has not been closely examined. We address the question of whether or not periods of high underpricing adversely affect preexisting shareholders. We find that high levels of underpricing are associated with increased share retention, which effectively offsets much of the potential cost. Overall, we find that the percentage of shareholder wealth lost is surprisingly stable over time, unlike underpricing itself. We also find that many factors known to be related to underpricing are not significant determinants of the cost of going public to preexisting owners.

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References

1986Why new issues are underpriced 1990Initial Public Offerings and Underwriter Reputation 1989How investment bankers determine the offer price and allocation of new issues 2004Why Has IPO Underpricing Changed Over Time 2003IPO Pricing in the Dot‐com Bubble 1997Underpricing, ownership and control in initial public offerings of equity securities in the UK 2001Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence 2002Partial Adjustment to Public Information and IPO Underpricing

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2018How does national culture influence IPO underpricing?2019Review of Theoretical Explanations of IPO Underpricing 2016IPO Firm Performance and Its Link with Board Officer Gender, Family-Ties and Other Demographics 2021Political power, local policy uncertainty and IPO pricing 2008REIT IPOs and the Cost of Going Public 2011Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs

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