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Underpricing in new equity listings: A conceptual re-appraisal

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Abstract

This paper appraises the existing approaches used to measure the underpricing of Initial Public Offerings (IPOs). The conceptual problems surrounding the measurement of IPO underpricing are noted to be significant and suggest that underpricing costs and returns may need to be evaluated with reference to the particular characteristics of individual offerings. For example, details of the number of primary shares on offer, the effect on corporate control of listing, the information effects resulting from listing, the liquidity of shares pre-offer, the impact of speculative activity on post-listing firm value and, finally, the actual dating of an IPO may all need to be considered. In short, the existing measures suggested for IPO underpricing do not allow managers/owners in IPO firms or investors in IPO stocks to assess, unequivocally, the respective costs and returns from underpricing in such issues.

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Authors and Affiliations

  1. School of Business and Economic Studies, University of Leeds, UK

    Kevin Keasey

  2. Department of Finance, Chinese University of Hong Kong, Shatin, N.T., Hong Kong

    Paul McGuinness

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  1. Kevin Keasey
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  2. Paul McGuinness
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The authors would like to acknowledge the helpful comments of an anonymous reviewer.

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Keasey, K., McGuinness, P. Underpricing in new equity listings: A conceptual re-appraisal. Small Bus Econ 7, 41–54 (1995). https://doi.org/10.1007/BF01074315

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