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Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets

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  • Goergen, M.
  • Khurshed, A.
  • Renneboog, L.D.R.

    (Tilburg University, Center for Economic Research)

Abstract

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marche of France.We find that the high underpricing in these two markets contrary to the evidence on the US - is not driven by insiders selling behaviour.However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares.In contrast, venture-capital involvement does not affect underpricing.For France, lock-up agreements act as substitutes to underpricing, but not so for Germany.We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-24.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200624

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Web page: http://center.uvt.nl

Related research

Keywords: IPOs; underpricing; venture capital; high technology; European new markets; lock-up agreements;

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References

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  1. Habib, Michel A & Ljungqvist, Alexander P, 2001. "Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 433-58.
  2. FranÁois Derrien & Kent L. Womack, 2003. "Auctions vs. Bookbuilding and the Control of Underpricing in Hot IPO Markets," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 31-61.
  3. Jenkinson, Tim & Ljungqvist, Alexander, 2001. "Going Public: The Theory and Evidence on How Companies Raise Equity Finance," OUP Catalogue, Oxford University Press, edition 2, number 9780198295990, September.
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  8. Jay R. Ritter, 2003. "Differences between European and American IPO Markets," European Financial Management, European Financial Management Association, vol. 9(4), pages 421-434.
  9. Brau, James C. & Lambson, Val E. & McQueen, Grant, 2005. "Lockups Revisited," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(03), pages 519-530, September.
  10. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
  11. Bill Francis & Iftekhar Hasan, 2001. "The Underpricing of Venture and Nonventure Capital IPOs: An Empirical Investigation," Journal of Financial Services Research, Springer, vol. 19(2), pages 99-113, April.
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  13. Susanne Espenlaub & Marc Goergen & Arif Khurshed, 2001. "PO Lock-in Agreements in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(9&10), pages 1235-1278.
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  15. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
  16. Wolfgang Bessler & Andreas Kurth, 2007. "Agency Problems and the Performance of Venture-backed IPOs in Germany: Exit Strategies, Lock-up Periods, and Bank Ownership," The European Journal of Finance, Taylor & Francis Journals, vol. 13(1), pages 29-63.
  17. Aggarwal, Rajesh K. & Krigman, Laurie & Womack, Kent L., 2002. "Strategic IPO underpricing, information momentum, and lockup expiration selling," Journal of Financial Economics, Elsevier, vol. 66(1), pages 105-137, October.
  18. Christopher B. Barry, 1994. "New Directions in Research on Venture Capital Finance," Financial Management, Financial Management Association, vol. 23(3), Fall.
  19. Salim Chahine & Igor Filatotchev & Mike Wright, 2007. "Venture Capitalists, Business Angels, and Performance of Entrepreneurial IPOs in the UK and France," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3-4), pages 505-528.
  20. Goergen, M. & Khurshed, A. & McCahery, J.A. & Renneboog, L.D.R., 2002. "The Rise and Fall of the European New Markets: On the Short and Long-Run Performance of High-Tech Initial Public Offerings," Discussion Paper 2002-101, Tilburg University, Center for Economic Research.
  21. Chahine, Salim, 2008. "Underpricing versus gross spread: New evidence on the effect of sold shares at the time of IPOs," Journal of Multinational Financial Management, Elsevier, vol. 18(2), pages 180-196, April.
  22. Marc Goergen & Luc Renneboog, 2003. "Why Are the Levels of Control (So) Different in German and U.K. Companies? Evidence from Initial Public Offerings," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 141-175, April.
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Cited by:
  1. Sophie Pommet, 2013. "The Impact of Venture Capital Investment Duration on the Survival of French IPOs," GREDEG Working Papers 2013-32, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  2. Sophie Pommet, 2013. "The impact of venture capital investment duration on the survival of French IPOs," Working Papers halshs-00923957, HAL.

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