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Underpricing versus gross spread: New evidence on the effect of sold shares at the time of IPOs


  • Chahine, Salim


This paper sheds light on the impact of initial owners' decisions to reduce underpricing at the time of initial public offerings (IPOs). Using a sample of 172 French IPOs, empirical findings indicate that the larger the percentage of primary and secondary shares sold, the higher the gross spread paid by initial owners, which reduces underpricing. Above a certain level of primary shares sold, however, underpricing increases. In contrast with prior research on US IPOs, initial owners endogenously determine the fraction of primary and secondary shares sold. When a firm goes public in the Nouveau Marché, the market for high-growth firms, initial owners are more concerned about the signalling effect of the sale of their secondary shares than the dilutive effect of primary shares. Therefore, they pay a larger gross spread in offerings with a higher participation ratio in order to reduce underpricing.

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  • 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.
  • Handle: RePEc:eee:mulfin:v:18:y:2008:i:2:p:180-196

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    References listed on IDEAS

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    1. repec:eee:mulfin:v:42-43:y:2017:i::p:95-115 is not listed on IDEAS
    2. Ranajit Kumar Bairagi & William Dimovski, 2012. "The direct costs of raising external equity capital for US REIT IPOs," Journal of Property Investment & Finance, Emerald Group Publishing, vol. 30(6), pages 538-562, September.
    3. Samarakoon, Lalith P., 2010. "The short-run underpricing of initial public offerings in the Sri Lankan stock market," Journal of Multinational Financial Management, Elsevier, vol. 20(4-5), pages 197-213, December.
    4. Evelyne Poincelot & Dominique Poincelot, 2015. "Existe-t-il une gestion managériale du flottant et du prix d’offre lors d’une introduction en Bourse sur Euronext Paris ? - Is there a management of the float and the offer price during an initial pub," Working Papers CREGO 1150102, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    5. Goergen, Marc & Khurshed, Arif & Renneboog, Luc, 2009. "Why are the French so different from the Germans? Underpricing of IPOs on the Euro New Markets," International Review of Law and Economics, Elsevier, vol. 29(3), pages 260-271, September.
    6. Riccardo Ferretti & Antonio Meles, 2010. "Underpricing, wealth loss for pre-existing shareholders and the cost of going public: the role of private equity backing in Italian IPOs," Venture Capital, Taylor & Francis Journals, vol. 13(1), pages 23-47, September.
    7. Engelen, Peter-Jan & van Essen, Marc, 2010. "Underpricing of IPOs: Firm-, issue- and country-specific characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1958-1969, August.

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