IPO Underpricing and the effect of information asymmetries

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2021-07-07
Language
en
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This research investigates underpricing on the modern European IPO market. The relevance of information asymmetry theories in explaining the level of underpricing is tested. Initial first-day returns are the highest in periods when firms come to the market in clusters, leading to extraordinary investment opportunities. The results for the European market are compared with American-based studies. In both markets, mostly younger firms with high profits and/or high market capitalization are engaged in IPO underpricing. The positive influence of underwriter reputation on underpricing disappears when controlled for the endogeneity bias of this explanatory variable. Overall, information asymmetry theories are explaining only a small part of the level of underpricing on the European stock market. The theory on hot and cold market periods is the most convincing theory in this research field. All models improved when controlled for cross-country differences. The results could be useful for investors when considering investments in IPO shares, as the period an IPO is offered in and firm characteristics could be worthy to take into account during the decision-making process.
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Faculteit der Managementwetenschappen