Underpricing

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Underpricing

Issuing securities at less than their market value.

Underpricing

Describing a situation in which a company prices an IPO lower than its market value. This results in the company raising less capital in the IPO than it could have raised. There is no definite way to determine if a stock issue is underpriced until it is too late and the price of the first secondary trade is much higher than the IPO.

underpricing

The pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale.
References in periodicals archive ?
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.
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.
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.