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IPO underpricing in Italy

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  • L. Cassia
  • G. Giudici
  • S. Paleari
  • R. Redondi
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    Abstract

    This article analyses the first-day return of 182 IPOs listed on the Italian Stock Exchange from 1985 to 2001. It finds a significantly mean positive underpricing (21.87%). Contrary to the evidence detected in the USA by Loughran and Ritter and Ljungqvist and Wilhelm, it highlights that on the main board of the Italian Exchange IPO underpricing decreased in the late 1990s. It claims that such a pattern can be accounted for by two determinants: (i) the evolution of pricing strategies, from fixed-price IPOs to bookbuilding, (ii) the segmentation of the Italian Exchange with the birth of a new board for high-growth and technology firms (Nuovo Mercato). It shows that IPOs are intentionally underpriced: both public and private information available at the IPO is only partially incorporated in pricing the shares. The results suggest that negative feedback learned during the preselling is more fully incorporated into the offer price than positive information. Finally, it shows that price revisions are partially predictable on the basis of public information at the time of the offering.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 14 (2004)
    Issue (Month): 3 ()
    Pages: 179-194

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    Handle: RePEc:taf:apfiec:v:14:y:2004:i:3:p:179-194

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    Web page: http://www.tandfonline.com/RAFE20

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    Web: http://www.tandfonline.com/pricing/journal/RAFE20

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    References

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    Cited by:
    1. Boreiko, Dmitri & Lombardo, Stefano, 2011. "Italian IPOs: Allocations and claw back clauses," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 127-143, February.
    2. Riccardo Ferretti & Antonio Meles, 2010. "Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs," Venture Capital, Taylor & Francis Journals, vol. 13(1), pages 23-47, September.
    3. Antonio Acconcia & Alfredo Del Monte & Luca Pennacchio, 2011. "Underpricing and Firm’s Distance from Financial Centre: Evidence from three European Countries," CSEF Working Papers 295, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Anna Vong, 2006. "Rate of subscription and after-market volatility in Hong Kong IPOs," Applied Financial Economics, Taylor & Francis Journals, vol. 16(16), pages 1217-1224.
    5. Beat Reber & Caroline Fong, 2006. "Explaining mispricing of initial public offerings in Singapore," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1339-1353.
    6. Pennacchio, Luca & Del Monte, Alfredo & Acconcia, Antonio, 2010. "Underpricing and distance: an empirical analysis," MPRA Paper 20273, University Library of Munich, Germany.
    7. Vong, Anna P.I. & Trigueiros, Duarte, 2010. "The short-run price performance of initial public offerings in Hong Kong: New evidence," Global Finance Journal, Elsevier, vol. 21(3), pages 253-261.

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