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We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.

Eckbo, Masulis, & Norli (2000) question previous examination of initial public offering (IPO) underperformance with the keen argument that the increase in the number of traded shares and the infusion of equity reduce two significant premia in the stock’s return, namely, liquidity risk and financial risk. The new market for high (expected) growth stock in Germany is examined for evidence of underpricing, underperformance, and liquidity improvements during the first two complete years of operation – 1998 and 1999. The initial trading period examines the offering day and also the first ten days of trading (for the investor who can not get allocation but enters the secondary market). The postissue performance study period is taken as the 5‐day period one‐year after the IPO. Using regression of four underpricing measures upon issuing firm characteristics deemed important from the extant literature, we seek to explain the degree of underpricing discovered. We find that substantial underpricing occurs and performance is high one year later, even adjusted for the German market return for the period or the firm‐specific sector performance for the same period. Trading dwindles for most stocks after the offering day. One year later, the trading of the stock is even lower. We do find that the more active the trading in the initial period, the greater the returns and trading one year after.

The purpose of this paper is to investigate the initial return patterns of Malaysian initial public offerings (IPOs) and whether shari'a‐compliant status would alter such patterns.

The effect of shari'a‐compliant status on the patterns of initial return of IPOs is analyzed using a sample of 386 IPOs issued between January 1999 and December 2007.

The preliminary results indicate that over the study period, the initial returns of Malaysian IPOs drop substantially from 94.91 percent reported from the pre‐crisis period of 1990‐1998 to 31.99 percent, a level more comparable to that reported in advanced markets. Since the initial returns do not revert to pre‐crisis levels, the new low IPO underpricing trend is more likely to be associated with the removal of pricing restraints. The results of regression analyses on the full sample, however, suggest that there is no drastic change with respect to factors that drive initial returns in Malaysian IPOs. With regards to shari'a‐compliant status, IPOs of this subsample show similar profiles to those of non‐shari'a counterparts. However, other than demand, the two subsamples are driven by different factors. Initial returns of shari'a‐compliant IPOs are driven by the size and type of offers, whereas those of the non‐shari'a IPOs are driven by risks.

Future studies should re‐examine the issue by taking into consideration the extensiveness of a firm's compliance to shari'a rules and other predictor variables.

This paper is one of the first to examine the effect of shari'a‐compliant status on the performance of IPOs.

This study examines the price performance of Greek IPOs in the period 1993‐1997. The Greek IPO market presents several particularities in respect to regulation and procedural arrangements that make its study interesting in the context of the international evidence regarding IPO price performance. We find that Greek IPOs had on average large positive initial returns, an evidence of under pricing. This evidence is also supported by the positive one‐year returns in relation to offer prices. Returns computed one year after listing in relation to the first trading day price are positive, inconsistent with international evidence. Annual analysis reveals, however, differential patterns in price behavior.

This paper aims to study the underpricing phenomenon of initial public offerings (IPOs) of 355 Indian companies issued from 2007 to 2019. The research question this paper empirically examines is whether Indian corporate executives deliberately underprice IPOs from its fair value to attract investors, thereby causing an abnormal spike in the prices on the listing day. The findings of this study challenge a commonly held notion of leaving money on the table by IPO issuing companies. Of the overall average listing day returns of 17%, the deliberate premarket underpricing component is found to be mere 5.3%, while the remaining price fluctuation is, inter alia, a result of market momentum along with the unmet demands of impatient investors.

Following Koop and Li (2001), this study uses Stochastic frontier model (SFM) to study a routine anomaly of disparity between the primary market price (i.e. IPO issue price) and the secondary market price (listing price). The jump in the issue price observed on a listing day is decomposed into deliberate premarket underpricing component that reflects the extent of managerial manipulation and the after-market misvaluation component attributable to information asymmetry and prevailing market volatility.

This paper uses SFM to bifurcate initial returns into deliberate underpricing by managers and after-market mispricing by noise traders. This study finds that a significant part of the initial return is explained through after-market mispricing. This study finds that average initial returns are 17%, deliberate premarket underpricing is 5.3% and after-market mispricing averages 11.9%.

This study can isolate underpricing done at the premarket by estimating a systematic one-sided error term that measures the maximum predicted issue price deviation from the offered price. Consequentially, the disaggregation of initial returns may be especially informative for retail investors in planning their exit strategy from an IPO by separating the strength of the firm's fundamentals and its causal relationship with the initial returns. Substantial proportion of after-market mispricing implies that future research should focus on factors causing after-market mispricing. As underlying causes are identified, tailor-made policy responses can be formulated to benefit investors.

This paper has empirically validated that initial return is a mix of both components, i.e. deliberate underpricing and aftermarket mispricing. This disaggregation of initial returns can prove helpful for investors in planning their exit strategy. This study can help investors to become more aware of the importance of the fundamentals of the firm and its causal relation with the initial returns. This information in turn can help reduce the information asymmetry amongst investors and help them lessen the costs of adverse selection.

A large number of research studies on IPO pricing find overwhelming evidence of underpricing in public issues. This research attempts to decompose the extent of underpricing into deliberate underpricing and after-market mispricing, thereby supplementing the existing literature on the IPO pricing puzzle. To the best of the authors’ knowledge, this study is the first contribution to the literature on initial return decomposition for the Indian capital markets.

Reviews previous research on initial public offering (IPO) pricing and performance, classifying it by six hypotheses which are not mutually exclusive. Uses 1990‐1997 data on IPOs on the Istanbul Stock Exchange to test these hypohteses, explains the methodology and presents the results, which show initial abnormal returns (realized by investors), but no long run underperformance of the market. Analyses the factors affecting short and long run IPO returns, considers consistency with other research and supports the winner’s curse and the fads hypotheses. Concludes that initial abnormal returns are due to both deliberate underpricing and overvaluation by investors’ and that factors which decrease uncertainty lead to lower returns.

Summarizes the regulatory environment and practices for providing a property company with a public listing. Furthermore, reports evidence of the direct and implied costs of undertaking a property initial public offering. The results indicate that choice of issue method and timing are key decisions to be made by property company financial managers.

The purpose of this paper is to examine the underpricing of initial public offers (IPOs), which were announced by Indian firms for the period 2007 through 2009. It is motivated by the fact that a well-developed capital market is a function of economic growth and a reflection of the financial system. Thus, this study investigates aftermarket pricing performance of IPOs during the recent global financial crisis.

This paper studies the underpricing of 133 IPOs in three groups, namely, house-full collections, short-run and long-run periods. To do so, it uses event study method to observe underpricing, which is examined in various window periods. Further, industry- and year-wise offers are analyzed and interpreted. Accordingly, hypotheses are being developed and tested through a static “analysis of variance”.

The study explores that post-listing IPOs assure positive returns in the short run, but they tend to plunge and become negative in the long run. In particular, highest returns have been observed in the first week of post-listing.

Limitations include, the study does not compute market-adjusted returns to find abnormal performance of stocks, and does not apply regression statistic to examine the factors that affect underpricing.

Eventually, conclusions are drawn from India–international results, and thus it would add some new insights on investor perspectives (e.g. price signalling) to the existing IPOs literature, especially from Asian markets context.

This paper is an original research that examines the underpricing of Indian IPOs during the recent financial crisis, particularly in three groups: house-full collections, short-run and long-run periods.

This study aims to investigate the valuation accuracy of Malaysian initial public offerings (IPOs) by using price-multiple methods.

Cross-sectional data including 467 IPOs listed on the Malaysian stock exchange were used for the period of 2000–2017. This study used univariate ordinary least square (OLS) regression to analyse the relationship between IPOs’ price-multiples and comparable firms’ price-multiples. The test of valuation accuracy was conducted via computing valuation errors by segregating the sample into two groups: fixed-price IPOs and book-built IPOs. Furthermore, multiple OLS regression was used to examine the influence of IPO valuation on underpricing.

The findings of the results suggested that IPOs price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S) multiples were positively related to the median P/E, P/B and P/S multiples of five comparable firms matched by industry and revenues. The P/S multiple was shown to be the most significant valuation method, specifically in book-built IPOs. The findings indicated that those firms that had a lower valuation in comparison to the comparable firms were inclined to underprice their IPOs to allure investors to subscribe IPOs. In addition, book-built IPOs that had fair valuations were inclined to generate higher initial returns for investors.

The findings of this study observed implications for underwriters in avoiding the mis-valuation issue by considering the book-building mechanism.

This study attempted to explore the suitability of the valuation method to value IPOs in Malaysia.

The purpose of this paper is to empirically investigate the phenomenon of earnings management in the Egyptian initial public offerings (IPO) market where most of the IPOs were the privatisations of state‐owned enterprises (SOEs).

Using a sample of 59 Egyptian IPOs, the extent of earnings management was computed using a modified cross‐sectional version of Jones’ model.

The initial results do not provide support for the hypothesis that Egyptian IPO firms tend to overstate their earnings before the IPO date. However, when the sample firms were classified under two groups based on the pre‐IPO discretionary accruals, the results illustrate that most privately‐owned companies were found among those which contemplate to aggressively manage earnings upwards in order to maximise the IPO proceeds, whereas privatised public enterprises were found with no systematic pattern of earnings manipulation. The results also demonstrate that pre‐offering discretionary accruals do not explain the post‐offering underperformance in earnings but predict a portion of the subsequent poor share returns performance.

The findings could be of assistance to all those involved in IPOs, such as the regulatory authorities and the primary and secondary market investors.

With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, it is hoped that undertaking a research in a country such as Egypt, where the shareholding structures of most Egyptian IPO companies were concentrated in the hands of the state before going public, may reveal a different perception of earnings management and help determine whether this setting would lead to a higher or lower propensity for earnings management.