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.