The Underpricing of Initial Public Offerings in Imperial Germany, 1870-1896
AbstractIn this article, we evaluate underpricing of initial public offerings (IPOs) at the Berlin Stock Exchange between 1870 and 1896. In contrast to modern data, first day returns were extraordinary low and averaged less than five percent, even during the speculative period of the early 1870s. Moreover, standard underpricing theories based on asymmetric information, signalling mechanisms, or litigation risk cannot explain underpricing. In contrast to modern markets, the past market return had a negative influence on initial returns. Finally, we show that cash-flow relevant information contained in the corporate charter were readily factored in the first market price. Thus, the historical capital market differed from today’s market, but seems to have been efficient.
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Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2008_46.
Date of creation: Dec 2008
Date of revision:
Initial public offerings; Financial history; Germany pre-1913;
Find related papers by JEL classification:
- N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
- N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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