Underpricing


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Related to Underpricing: IPO

Underpricing

Issuing securities at less than their market value.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
On average, anchor-backed IPOs produce listing-day returns (underpricing) of 7.68% whereas non-anchor-backed IPOs produce returns of 19.58%.
If potential investors know that showing a willingness to pay a higher price results in a higher offer price because later potential investors can learn from the purchasing decisions of earlier investors, leading to cascades (Welch, 1992), they should be offered either more allocations or underpricing to truthfully reveal information.
Section 4 shows the empirical results: in 4.1 the short term analysis of underpricing and in 4.2 long run performance by industry.
Initial Public Offerings (IPOs) have been shown to be characterized by two anomalies: underpricing in the short-term horizon and underperformance in the long-term horizon (Rhee, 2002; Khan et al., 2014).
Understanding underpricing and its relation to long-term market performance is very important for investors and issuers.
This finding opens up an insight into underpricing on an IPO.
The present study is conducted to determine whether IPO underpricing exist in Pakistan and what are factors that contribute in this underpricing of IPOs.
Managers of unlisted and listed firms will be able to determine the significant factors that influence the underpricing. The present study seeks to fill this research gap by investigating the phenomena of underpricing of IPO and factors influencing on it in an emerging market with reference to Pakistan Stock Exchange.
Four hypotheses related to the determinants of the level of underpricing are examined, namely number of risk factors is expected to have a positive effect, ownership retention is predicted to have a negative effect, use of proceeds for investment or expansion is expected to have negative effect, and size of the issue is predicted to have a negative effect.
Out of five independent variables, gender diversity is significantly related to underpricing. The positive relationship is in the opposite direction hypothesized and Hypothesis 1 was rejected.
Who benefited from this underpricing? Who lost from the price increase?
Prior research has provided evidence in support of underpricing which seems to exist in all countries.