While the empirical evidence supports the view that asymmetric information models, including agency conflicts between the issuer and the investment banks, provides a primary explanation to the why new issues are underpriced
, the enormous fluctuation in the level of underpricing over time raises doubt whether there may be other reasons that may explain the underpricing phenomenon.
2010) found that IPOs were underpriced
by 290% in 47 Gulf Firms.
As such, VC-backed IPOs should be more underpriced
The industrial sector is currently the most attractively priced sector in the UK, with three of the top five most underpriced
markets in DTZ's UK Fair Value Index all in this sector.
For example, IPO firms which select highly-reputed underwriters are more underpriced
with a level of 17% the first listing week than others which select low-reputed underwriters.
She provides evidence that SEOs of low-priced securities are more underpriced
than offers of high-priced securities.
Among them five IPOs were underpriced
and three were overpriced.
6) In discussing Tinic's work, Drake and Vetsuypens (1993) found that IPOs' related litigation appears to be driven by large subsequent price declines long after the IPO, and not by whether the IPO was initially underpriced
Hypothesis 2: There is a negative relationship between market choice and IPO underpricing such that foreign firms that list in the United States are less underpriced
than those foreign firms that list in the United Kingdom.
The times subscribed variable is very significant and has a positive sign, suggesting that the IPOs which are more oversubscribed are highly underpriced
The results support the asymmetric information hypothesis and the results of Prezas, Tarimcilar, and Vasudevan (2000) and Hogan and Olson (2004, 2006) that show ECOs are significantly less underpriced
than typical IPOs.
Our results reveal that demutualization IPOs are underpriced
and the magnitude of underpricing exceeds that of non-demutualization IPOs.