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The short-run underpricing of initial public offerings in the Sri Lankan stock market

  • Samarakoon, Lalith P.
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    This study investigates underpricing of IPOs in Sri Lanka. On average, IPOs are underpriced by 34%. Small issues are more underpriced than large issues, and privatization issues are more underpriced than conventional issues. Investor sentiment is positively related with underpricing and affects small and large issues similarly. Small privatization issues are more underpriced than large privatization issues and partially explain the asymmetry in underpricing between small and large issues. However, even after controlling for investor sentiment, privatization, hot-market conditions, underwriter-size, and industry, small issues remain more underpriced than large issues. The results strongly support the uncertainty hypothesis for larger underpricing of small issues, and privatization issues.

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    File URL: http://www.sciencedirect.com/science/article/B6VGV-50KWFY9-3/2/8627fc1415844fdd4b505c403616093f
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    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 20 (2010)
    Issue (Month): 4-5 (December)
    Pages: 197-213

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    Handle: RePEc:eee:mulfin:v:20:y:2010:i:4-5:p:197-213
    Contact details of provider: Web page: http://www.elsevier.com/locate/mulfin

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    1. Randolph P. Beatty & Jay R. Ritter, . "Investment Banking, Reputation and the Underpricing of Initial Public Offerings," Rodney L. White Center for Financial Research Working Papers 02-85, Wharton School Rodney L. White Center for Financial Research.
    2. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
    3. Reena Aggarwal & Ricardo Leal & Leonardo Hernandez, 1993. "The Aftermarket Performance of Initial Public Offerings in Latin America," Financial Management, Financial Management Association, vol. 22(1), Spring.
    4. Mohammed Omran, 2005. "Underpricing And Long-Run Performance Of Share Issue Privatizations In The Egyptian Stock Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(2), pages 215-234.
    5. Mazouz, Khelifa & Saadouni, Brahim & Yin, Shuxing, 2008. "The long-term performance of Hong Kong share-only and unit initial public offerings (IPOs)," Journal of Multinational Financial Management, Elsevier, vol. 18(3), pages 209-228, July.
    6. 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.
    7. Kiymaz, Halil, 2000. "The initial and aftermarket performance of IPOs in an emerging market: evidence from Istanbul stock exchange," Journal of Multinational Financial Management, Elsevier, vol. 10(2), pages 213-227, June.
    8. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1995. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 139-140, May.
    9. Chen, Gongmeng & Firth, Michael & Kim, Jeong-Bon, 2004. "IPO underpricing in China's new stock markets," Journal of Multinational Financial Management, Elsevier, vol. 14(3), pages 283-302, July.
    10. Lyn, Esmeralda O. & Zychowicz, Edward J., 2003. "The performance of new equity offerings in Hungary and Poland," Global Finance Journal, Elsevier, vol. 14(2), pages 181-195, July.
    11. Ljungqvist, Alexander P., 1997. "Pricing initial public offerings: Further evidence from Germany," European Economic Review, Elsevier, vol. 41(7), pages 1309-1320, July.
    12. 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.
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