Articlegreen2006

Penny Stock IPOs

Daniel Bradley · John Cooney · Steven D. Dolvin · Bradford D. Jordan

101 citations0/0 files storedFinancial Management

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

Abstract

We examine underpricing, long-run returns, lockup periods, and gross spreads for penny stock IPOs over the 1990-1998 period. We find that penny stock IPOs have higher initial returns than ordinary IPOs, but significantly worse long-run underperformance. We also find that penny stock IPOs have longer lockup periods and larger gross spreads. To explore the effect of potential market manipulation, we examine IPOs led by a group of underwriters that were the subject of SEC enforcement actions and/or other penalties. Penny stock issues led by these banks are particularly underpriced and underperform ordinary IPOs led by other underwriters.

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References

1993Common risk factors in the returns on stocks and bonds 1991The Long‐Run Performance of initial Public Offerings 2002A Review of IPO Activity, Pricing, and Allocations 1990Initial Public Offerings and Underwriter Reputation 2004Why Has IPO Underpricing Changed Over Time 2002Why Don’t Issuers Get Upset About Leaving Money on the Table in IPOs?1997The Delisting Bias in CRSP Data 1993The underpricing of initial public offerings and the partial adjustment phenomenon

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