IPO Underpricing, Trading Volume, and Investor Interest

Reese, William A.

doi:10.2139/ssrn.115348

Cited by 33 publications

(42 citation statements)

References 42 publications

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“…These results are consistent with our results. Reese (2000) documents that IPOs with higher levels of underpricing have significantly higher trading volume for three years following the IPO. Rajan and Servaes (1997) examine the relationship between underpricing and analyst provision of earnings estimates on the Institutional Brokers Estimate System (IBES) for IPOs from 1975 to 1987.…”

Section: Introductionmentioning

confidence: 99%

Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling

2001

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Managers usually do not sell any of their own shares in an initial public offering but instead wait until the end of the lockup period. We develop a model in which managers strategically underprice IPOs to maximize personal wealth from selling shares at lockup expiration. Firstday underpricing generates information momentum by attracting attention to the stock and thereby shifting the demand curve for the stock outwards. This allows managers to sell shares at the lockup expiration at prices higher than they would otherwise obtain. We test the model on a sample of IPOs in the 1990s. We find that higher ownership by managers is positively correlated with first-day underpricing, underpricing is positively correlated with research coverage, and research coverage is positively correlated with stock returns and insider selling at the lockup expiration. These results are consistent with the model. r

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Section: Introductionmentioning

confidence: 99%

Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling

2001

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“…Booth and Deli (1996) examine that small investors are preferred and underpricing is used to help achieve a dispersed ownership. Reese (1998) reveals that, there is a significant positive relationship between under-pricing and post-listing trading volume for up to three years after listing. He suggested the level of investor interest in each IPO, which is represented by the extent of financial media coverage, to be a possible explanation for this relationship.…”

Section: Literature Reviewmentioning

confidence: 94%

High credit rating IPOs and determinants of underpricing

Bansal¹

2013

J. Econ. Int. Finance

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In this paper, we declare that such objective, autonomous and exogenous certifying mechanism provides a better opportunity to test the well-established credit rating hypothesis, especially in the context of emerging markets with institutional voids. Employing a sample of 142 Indian IPOs (January 2007 to December 2012), we also experiment Ex-ante uncertainty with the efficacy of IPO (Initial Public Offerings) grading mechanism. We procure; grading decreases IPO underpricing and positively influences demand of retail investors, issue size, earnings before interest and dividend, long-term debtequity equity ratio and profit to the book value ratio. Grading diminishes the number of share offered, a debt-equity ratio, and earnings before interest, dividend and tax, fixed to assess ratio and is having much impact on Ex-Ante uncertainty. Notwithstanding, grading does not affect subscription rate, offer timing (difference in days between offer days and listing days), firm's age, debtors turnover ratio, creditor payment method, cash to price earnings ratio, PIPH (post issue promoter's holding), interest coverage ratio, inventory turnover ratio, market capitalization, price earnings ratio, return on capital employed and return on net worth of the IPOs. IPO grading is prominent to capture firm size, business group affiliation and firm's quality of corporate governance. Our findings put forward that, in emerging markets, regulator's role to signal the quality of an IPO contributes with respect to the market welfare.

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“…(1993) and Aggarwal, Krigman, and Womack (2002), which show that initial underpricing attracts analyst coverage, and (b) the observation that analyst and financial media coverage reduces information asymmetry and thus illiquidity (cf. Reese, 1998;2 Popescu and Xu, 2011 3 ). This theory is further referred to as the information production hypothesis.…”

Section: Introductionmentioning

confidence: 99%

“…On average, underpriced IPOs exhibit higher aftermarket trading activity than overpriced IPOs (Miller and Reilly, 1987;Hanley, 1993;Schultz and Zaman, 1994;Reese, 1998;Hahn and Ligon, 2006;Li and Zheng, 2008). A higher level of underpricing leads not only to increased trading turnover but also to lower bid-ask spreads (Pham, Kalev, and Steen, 2003;Li, Zheng, and Melancon, 2005) and lower adverse selection costs (Li, McInish, and Wongchoti, 2005).…”

Section: Introductionmentioning

confidence: 99%

“…First, many of the empirical studies that find a positive link between IPO underpricing and post-listing liquidity are based 2 Reese (1998) assigns the positive relation between underpricing and post-listing liquidity to financial media coverage which reduces information asymmetry. 3 Popescu and Xu (2011) shows that some characteristics of the underwriting syndicate as well as the number of analyst recommendations are associated with lower spreads and lower information asymmetry after the primary listing.…”

Section: Introductionmentioning

confidence: 99%

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Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect

2012

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Our study investigates by which channels IPO underpricing impacts post-listing liquidity. Using a sample of IPOs undertaken on Euronext with diverse mechanisms, we show that when ownership structure is not influenced by initial underpricing, this underpricing still has a positive impact on aftermarket liquidity by a virtuous cycle related to analyst coverage.The analyst coverage purchased by initial underpricing reduces information asymmetry costs and illiquidity in the secondary market. The public information produced by analysts has a statistically more significant impact on adverse selection costs than on the proportion of informed traders in the market.1

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IPO Underpricing, Trading Volume, and Investor Interest

Cited by 33 publications

References 42 publications

Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling

Strategic IPO Underpricing, Information Momentum, and Lockup Expiration Selling

High credit rating IPOs and determinants of underpricing

Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect

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