- Copyright Page
- The Law and Economics of the Going-Public Decision
- IPO Regulators Gone Wild
- Determinants of Variation in IPO Underpricing
- IPO Valuation: The International Evidence
- Survey and Synthesis of the IPO Underpricing Literature: The Fixed-Offer Price Constraint as a Unifying Core Explanation
- IPO Market Conditions and Timing over the Long Run
- The Interplay of IPO and M&A Markets: The Many Ways That One Affects the Other
- Lower Visibility Platforms Serving as Stepping Stones to National Stock Exchanges: The Case of Shell Reverse Mergers
- Going Public in China: Reverse Mergers versus IPOs on Chinese Markets
- Specified Purpose Acquisition Company IPOs
- The Impact of IPOs’ Analyst Coverage on the Choice and Timing of SEOs: A Survival Analysis
- Auditor Selection and IPO Underpricing
- The Structure and Role of the Underwriting Syndicate
- Venture Capital and Financial Reporting in Newly Public Firms
- The Dark Side of Venture Capital Syndication and IPO Firm Performance: The Impact of Different Institutional Environments
- All Ties Are Not Created Equal: Institutional Equity Ties, IPO Performance, and Market Growth of New Ventures
- Is Exchange Regulation Effective for Junior Public Equity Markets?
- Corporate Governance in European IPOs
- Survival of Initial Public Offerings on Europe’s New Stock Markets
- Initial Public Offerings in Germany between 1997 and 2015
- The Underpricing of Initial Public Offerings and Private Placements of Equity in China
- IPOs in New Zealand: An Analysis of Benchmark-Adjusted Performance
- Initial Public Offerings in Hong Kong
- The Admission and Regulation of Overseas Issuers: A Survey of the Top Four Financial Centers
- IPOs in a Major Emerging Market Economy—India
- Private Capital Marketplaces and IPOs
- Crowdfunding: Business and Regulatory Perspective
- Regulatory Arbitrage in Cross-Border Crowdfunding
Abstract and Keywords
This chapter surveys the vast literature on initial public offering (IPO) underpricing, focusing on the major theories of underpricing, along with the most relevant empirical findings. These theories, or explanations, are classified into those based on asymmetric information, agency conflicts, behavioral issues, share allocation targets, and institutional arrangements. This last classification has received little attention in the previous couple of decades, although the authors argue that the related fixed-offer price constraint, first proposed as an explanation by Ibbotson (1975), can explain a “core” level of underpricing equal to about one-half to two-thirds of that historically observed, while still assuming that issuing firms seek to maximize offering proceeds net of the spread. In addition, it provides a unifying framework for understanding how, and when, the other explanations can contribute to underpricing beyond this core level.
Steven L. Jones is Professor of Finance at Kelley School of Business, Indiana University-Indianapolis Campus.
John C. Yeoman is Professor of Finance at the University of North Georgia.
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