A market microstructure explanation of IPOs underpricing

A market microstructure explanation of IPOs underpricing

In a typical IPO game with first-price auctions, we argue that risk-averse investors always underbid in equilibrium because of subjective interpretations of the firm’ communication about its actual value and resulting risk aversion about the likelihood of facing investors with higher valuations. We show that the noisier the investors’ inferences of the firm’ value (in the sense of first-order s...

Underpricing of Privatised IPOs: The Australian Experience

We investigate the price performance of initial public o erings (IPOs) of formally state-owned companies in Australia. On average, privatised IPOs in Australia are underpriced by about 11%, which is not signi cantly di erent from the magnitude of underpricing of the privately-owned IPOs. This percentage is also similar to that of privatised share o erings in other OECD countries. In addition, c...

An Empirical Investigation of Underpricing in Chinese IPOs

We study the underpricing of Chinese IPOs, using data of 308 flrm-commitment new issues. We flnd that underpricing can be explained in terms of a separating equilibrium under asymmetric information in which underpricing is a strategy for flrms to signal their value to investors. We show that bribery is an unlikely cause of the high IPO underpricing observed in the Chinese data. We also investig...

Market Sentiment, IPO Underpricing, and Valuation

We examine IPO underpricing, valuation, and wealth allocation in relation to investor sentiment, information asymmetry, and underwriter reputation. We find that underpricing is significantly higher for overvalued IPOs than for undervalued IPOs, and is positively correlated to investor sentiment. Information asymmetry is also positively correlated to the magnitude of underpricing but only for un...

Audit Committee, Underpricing of Ipos and Accuracy of Management Earnings Forecasts