Is Underpricing Greater for Mixed Offerings as Compared to Pure Primary Offerings in the Otc Market

The existence of "underpricing" has been established by a number of empirical studies in the case of common stock initial public offerings (CSIPOs). The after-market prices of such common stocks have consistently been found to be higher than their corresponding offering prices. However, these papers appear to have concentrated on examining the underpricing in the case of CSIPOs as a whole even though, in practice, there are three types of offerings viz. pure primary offerings, mixed offerings, and pure secondary offerings. This study is motivated by the results of two studies. From the results, it may be inferred that a possibility exists of there being differences in the extent of underpricing for the different types of offerings. This study shows that the level of underpricing is about the same based on one-day excess returns. However, based on one-month excess returns, mixed offerings have a higher level of underpricing as compared to pure primary offerings at a 15% level of significance. It appears that the market does not appear to consider mixed offerings to be substantially more risky than pure primary offerings.