The Pricing of Insurer Demutualization Initial Public Offerings
This article examines the pricing of the initial public offerings (IPOs) that follow insurance company demutualizations. Insurers that convert from mutual to stock form typically cite the need for capital as a key motivation. Given that capital adequacy is a primary regulatory objective for insurers, one would expect that for a given number of shares to be sold, these firms would price their offerings to maximize proceeds. However, the vast literature on IPO pricing suggests various theories as to why it may be in the issuing firm's best interest to underprice its offering. By examining the initial and long-run stock returns for these conversion IPOs, the existence and degree of underpricing, as characterized by large initial returns, can be determined. It is observed that on average demutualization insurer IPOs post significantly higher first-day returns than nondemutualization insurer IPOs. These gains would accrue to the initial investors and to those policyholders who receive compensation in the form of shares in the newly created stock insurer. Attractive returns are sustained for both groups of insurers during the first few years after IPO. Copyright The Journal of Risk and Insurance, 2006.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 73 (2006)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1|
More information through EDIRC
|Order Information:||Web: http://www.wiley.com/bw/subs.asp?ref=0022-4367|
When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:73:y:2006:i:3:p:439-468. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.