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Initial Public Offering Underpricing: The Issuer's View--A Comment

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  • Barry, Christopher B

Abstract

The author considers the underpricing of initial public offerings and the wealth transfers implicit in that underpricing. He finds that initial returns properly measure the "issue cost" effect of underpricing as a fraction of offer size, as in J. R. Ritter (1987). The author presents a measure of the wealth effect of underpricing per share retained. In general, the wealth effects on existing shareholders depend on the extent to which they participate in the offering. From the perspective of issuer's wealth, the author finds that S. M. Dawson's (1987) measure is appropriate only in the special case in which all of the prior owners' shares are sold in the initial public offerings. Copyright 1989 by American Finance Association.

Suggested Citation

  • Barry, Christopher B, 1989. " Initial Public Offering Underpricing: The Issuer's View--A Comment," Journal of Finance, American Finance Association, vol. 44(4), pages 1099-1103, September.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:4:p:1099-1103
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    Cited by:

    1. Woei-Chyuan Wong & Seow-Eng Ong & Joseph Ooi, 2013. "Sponsor Backing in Asian REIT IPOs," The Journal of Real Estate Finance and Economics, Springer, vol. 46(2), pages 299-320, February.
    2. Bayley, Luke & Lee, Philip J. & Walter, Terry S., 2006. "IPO flipping in Australia: cross-sectional explanations," Pacific-Basin Finance Journal, Elsevier, vol. 14(4), pages 327-348, September.
    3. Marc T. Junkunc & Jonathan T. Eckhardt, 2009. "Technical Specialized Knowledge and Secondary Shares in Initial Public Offerings," Management Science, INFORMS, vol. 55(10), pages 1670-1687, October.
    4. Shu, Pei-Gi & Chiang, Sue-Jane, 2014. "Firm size, timing, and earnings management of seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 177-194.
    5. Katherine Spiess, D. & Pettway, Richard H., 1997. "The IPO and first seasoned equity sale: Issue proceeds, owner/managers' wealth, and the underpricing signal," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 967-988, July.
    6. Ekkayokkaya, Manapol & Pengniti, Tulaya, 2012. "Governance reform and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 238-253.

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