However, if investment bankers underprice
to avoid legal responsibility in case an underwritten issue's performance results unsatisfactory, we would expect to see fewer short run cases of that nature.
Listing delay has a negative effect on underpricing, that is, the firms with larger time gap between offer and listing tend to underprice
more; however a positive effect of listing delay on long-run performance suggests that firms with larger delay have better performance in the long-run.
In the previous section, it was suggested the existence of risky projects is necessary for the firms to go public and underprice
9) These theories suggest that governments deliberately underprice
GOC IPOs to achieve political objectives such as wider stock ownership, support for the privatization program and increased probability of re-election.
4,5) The results are consistent with the notion that diversified firms underprice
less than focused firms.
In response to a higher assessed threat, managers can underprice
more at the margin in an attempt to reduce the post-IPO concentration of outside share ownership and the likelihood of an unwanted turnover in control.
This argument implies that low-quality firms do not underprice
their IPOs as much as do high-quality firms, so investors correctly perceive underpricing as a signal of the firm's quality.
The reduction in spinning removed the incentive for issuers to choose investment bankers who underprice
It is generally believed that a warrant's exercise price is tied to the offering price, reinforcing the underwriter's incentive to underprice
when warrants are used.
Several reasons have been proposed to explain why a firm would willingly underprice
its securities and limit the funds received.
However, Muscarella and Vetsuypens |19~ find evidence that investment bankers underprice
stock in their own firms when going public.
Alexander's claim that small IPOs bear little litigation risk contradicts Tinic's |17~ rationale of why small firms underprice
their IPOs more than larger firms.