IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Underpricing of IPOs: Firm-, issue- and country-specific characteristics

  • Engelen, Peter-Jan
  • van Essen, Marc

Using a large firm-level dataset of 2920 IPOs from 21 countries we examine the impact of country-level institutional characteristics on the underpricing of IPOs. Through hierarchical linear modeling we are able to control for firm-specific and issue-specific characteristics and test whether country-specific institutional characteristics add explanatory power to explain the level of underpricing. Our results show that about 10% of the variation in the level of underpricing is between countries. The quality of a country's legal framework, as measured by its level of investor protection, the overall quality of its legal system and its level of legal enforcement, reduces the level of underpricing significantly.

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.

File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00011-7
Download Restriction: Full text for ScienceDirect subscribers only

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.

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1958-1969

as
in new window

Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1958-1969
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Tim Loughran & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 413-444, March.
  3. Neng Wang & Rui Albuquerque, 2005. "Agency Conflicts, Investment, and Asset Pricing," Computing in Economics and Finance 2005 351, Society for Computational Economics.
  4. Baron, D. P. & Holmström, B. R., 1980. "Abstract: The Investment Banking Contract for New Issues Under Asymmetric Information: Delegation and the Incentive Problem," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(04), pages 851-851, November.
  5. Alexander Ljungqvist & William J. Wilhelm, 2003. "IPO Pricing in the Dot-com Bubble," Journal of Finance, American Finance Association, vol. 58(2), pages 723-752, 04.
  6. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
  7. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
  8. Hauser, Shmuel & Yaari, Uzi & Tanchuma, Yael & Baker, Harold, 2006. "Initial Public Offering Discount and Competition," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 331-51, April.
  9. Lawrence M. Benveniste & Alexander Ljungqvist & William J. Wilhelm & Xiaoyun Yu, 2002. "Evidence of Information Spillovers in the Production of Investment Banking Services," OFRC Working Papers Series 2002fe06, Oxford Financial Research Centre.
  10. Tim Jenkinson & William Wilhelm, 2001. "Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors," Economics Series Working Papers 2001-FE-06, University of Oxford, Department of Economics.
  11. Reese, William Jr. & Weisbach, Michael S., 2002. "Protection of minority shareholder interests, cross-listings in the United States, and subsequent equity offerings," Journal of Financial Economics, Elsevier, vol. 66(1), pages 65-104, October.
  12. Michaely, Roni & Shaw, Wayne H, 1994. "The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 279-319.
  13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
  14. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
  15. Chiou, Wan-Jiun Paul & Lee, Alice C. & Lee, Cheng-Few, 2010. "Stock return, risk, and legal environment around the world," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 95-105, January.
  16. Ljungqvist, Alexander P., 1997. "Pricing initial public offerings: Further evidence from Germany," European Economic Review, Elsevier, vol. 41(7), pages 1309-1320, July.
  17. Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," NBER Working Papers 8805, National Bureau of Economic Research, Inc.
  18. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
  19. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1994. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 2(2-3), pages 165-199, May.
  20. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  21. Ritter, Jay R, 1984. "The "Hot Issue" Market of 1980," The Journal of Business, University of Chicago Press, vol. 57(2), pages 215-40, April.
  22. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  23. Baron, David P & Holmstrom, Bengt, 1980. " The Investment Banking Contract for New Issues under Asymmetric Information: Delegation and the Incentive Problem," Journal of Finance, American Finance Association, vol. 35(5), pages 1115-38, December.
  24. Mariassunta Giannetti & Andrei Simonov, 2006. "Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices," Journal of Finance, American Finance Association, vol. 61(3), pages 1507-1547, 06.
  25. Cheung, Yan-Leung & Qi, Yuehua & Raghavendra Rau, P. & Stouraitis, Aris, 2009. "Buy high, sell low: How listed firms price asset transfers in related party transactions," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 914-924, May.
  26. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research.
  27. Steven D. Dolvin & Bradford D. Jordan, 2008. "Underpricing, Overhang, and the Cost of Going Public to Preexisting Shareholders," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(3-4), pages 434-458.
  28. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  29. Wasserfallen, Walter & Wittleder, Christian, 1994. "Pricing initial public offerings: Evidence from Germany," European Economic Review, Elsevier, vol. 38(7), pages 1505-1517, August.
  30. de Jong, A. & Kabir, R. & Nguyen, T.T., 2007. "Capital Structure around the World: The Roles of Firm- and Country-Specific Determinants," ERIM Report Series Research in Management ERS-2007-058-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  31. David Chambers & Elroy Dimson, 2009. "IPO Underpricing over the Very Long Run," Journal of Finance, American Finance Association, vol. 64(3), pages 1407-1443, 06.
  32. Kunz, Roger M. & Aggarwal, Reena, 1994. "Why initial public offerings are underpriced: Evidence from Switzerland," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 705-723, September.
  33. Benveniste, Lawrence M. & Wilhelm, William J., 1990. "A comparative analysis of IPO proceeds under alternative regulatory environments," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 173-207.
  34. Mahoney, Paul G, 2001. "The Common Law and Economic Growth: Hayek Might Be Right," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 503-25, Part I Ju.
  35. Klapper, Leora F. & Love, Inessa, 2002. "Corporate governance, investor protection, and performance in emerging markets," Policy Research Working Paper Series 2818, The World Bank.
  36. Paula Hill & Nicholas Wilson, 2006. "Value Gains on Flotation and IPO Underpricing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9-10), pages 1435-1459.
  37. Daouk, Hazem & Lee, Charles M.C. & Ng, David, 2006. "Capital market governance: How do security laws affect market performance?," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 560-593, June.
  38. Vijay Jog & Bruce J. McConomy, 2003. "Voluntary Disclosure of Management Earnings Forecasts in IPO Prospectuses," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(1-2), pages 125-168.
  39. Gugler, Klaus & Mueller, Dennis C & Yurtoglu, B Burcin, 2004. "Corporate Governance and the Returns on Investment," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 589-633, October.
  40. Berkman, Henk & Cole, Rebel A. & Fu, Lawrence J., 2009. "Expropriation through loan guarantees to related parties: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 141-156, January.
  41. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "Investor Protection and Corporate Governance," Working Paper 19455, Harvard University OpenScholar.
  42. 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.
  43. Pistor, Katharina & Keinan, Yoram & Kleinheisterkamp, Jan & West, Mark D., 2003. "Innovation in corporate law," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 676-694, December.
  44. Ibbotson, Roger G & Jaffe, Jeffrey F, 1975. ""Hot Issue" Markets," Journal of Finance, American Finance Association, vol. 30(4), pages 1027-42, September.
  45. Allaudeen Hameed & Guan Hua Lim, 1998. "Underpricing and Firm Quality in Initial Public Offerings: Evidence from Singapore," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3&4), pages 455-468.
  46. Moez Bennouri & Sonia Falconieri, 2008. "The Optimality of Uniform Pricing in IPOs: An Optimal Auction Approach," Review of Finance, European Finance Association, vol. 12(4), pages 673-700.
  47. Dimovski, William & Brooks, Robert, 2008. "The underpricing of gold mining initial public offerings," Research in International Business and Finance, Elsevier, vol. 22(1), pages 1-16, January.
  48. Biais, Bruno & Faugeron-Crouzet, Anne-Marie, 2000. "IPO Auctions: English, Dutch, ... French and Internet," IDEI Working Papers 104, Institut d'Économie Industrielle (IDEI), Toulouse.
  49. Suchard, Jo-Ann, 2009. "The impact of venture capital backing on the corporate governance of Australian initial public offerings," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 765-774, April.
  50. Luzi Hail & Christian Leuz, 2006. "International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 485-531, 06.
  51. Kaneko, Takashi & Pettway, Richard H., 2003. "Auctions versus book building of Japanese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 439-462, September.
  52. Francis Boabang, 2005. "The Opening, Short, Medium and Long Term Performance of Canadian Unit Trust Initial Public Offerings (IPOs)," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1519-1536.
  53. Baron, David P, 1982. " A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues," Journal of Finance, American Finance Association, vol. 37(4), pages 955-76, September.
  54. Su, Dongwei & Fleisher, Belton M., 1999. "Why does return volatility differ in Chinese stock markets?," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 557-586, December.
  55. 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.
  56. Pursey Heugens & Marc Essen & J. Oosterhout, 2009. "Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding," Asia Pacific Journal of Management, Springer, vol. 26(3), pages 481-512, September.
  57. Leite, Tore, 2007. "Adverse selection, public information, and underpricing in IPOs," Journal of Corporate Finance, Elsevier, vol. 13(5), pages 813-828, December.
  58. James C. Brau & Stanley E. Fawcett, 2006. "Initial Public Offerings: An Analysis of Theory and Practice," Journal of Finance, American Finance Association, vol. 61(1), pages 399-436, 02.
  59. Roosenboom, Peter & Schramade, Willem, 2006. "The price of power: Valuing the controlling position of owner-managers in French IPO firms," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 270-295, January.
  60. Roosenboom, Peter & van Dijk, Mathijs A., 2009. "The market reaction to cross-listings: Does the destination market matter?," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1898-1908, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1958-1969. 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: (Zhang, Lei)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.