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Skewness preference and IPO underpricing: International evidence

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  • Cho, Eunyoung
  • Kim, Woojin

Abstract

This paper examines the impact of expected skewness on IPO underpricing based on a comprehensive set of IPOs from 23 countries. We find that IPOs with high expected skewness at both industry-level and market-level exhibit significantly higher first-day returns, which is more pronounced in countries with relatively higher litigation risk, higher gambling propensity, a larger non-religious population, and a more individualistic culture. Moreover, IPOs with high expected skewness significantly underperform those with low expected skewness over a longer horizon. Our results suggest that a key friction that prevents issuers from taking advantage of such skew preference may be the legal risk involved with potential overpricing.

Suggested Citation

  • Cho, Eunyoung & Kim, Woojin, 2023. "Skewness preference and IPO underpricing: International evidence," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001800
    DOI: 10.1016/j.ribaf.2023.102054
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    Keywords

    IPO; Skewness preference; Lottery; Underpricing; International stock markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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