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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27140
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| Title: | Underpricing of Venture and Non Venture Capital IPOs: An Empirical Investigation |
| Authors: | Francis, Bill B.
Hasan, Iftekhar |
| Issue Date: | 1999 |
| Series/Report no.: | FIN-99-065 |
| Abstract: | In this paper we examine the premarket underpricing phenomenon within a
group of venture-backed and a group of non venture-backed initial public
offerings (IPOs) using a stochastic frontier approach. Consistent with
previous research, we find that venture-backed IPOs are managed by more
reputable underwriters and are generally associated with less
underwriter compensation. However, unlike other papers in the
literature, we find that the initial day returns of venture-backed IPOs
are, on average, higher than the non venture-backed group. We also
observe a significantly higher degree of pre-market pricing inefficiency
in the initial offer price of venture-backed IPOs. Further, our results
show that a significant portion of the initial day returns is due to
deliberate underpricing in the premarket. We also observe that for both
venture and non-venture issuers, there is a positive relationship
between deliberate underpricing and the probability that underwriters
provide support for the issue. This evidence is consistent with the
notion that underwriters deliberately underprice the offering to reduce
costs of price stabilization in the after-market. |
| URI: | http://hdl.handle.net/2451/27140 |
| Appears in Collections: | Finance Working Papers
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