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Underpricing and IPO ownership retention

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  • Richard Robinson
  • Mary Robinson
  • Chien-Chih Peng

Abstract

An agency-theory model of IPO management retention is presented and empirically explored. The model is based upon the differences between the investment public’s and underwriters’ fears of the consequences of management entrenchment and other agency problems. The model suggests that IPO underpricing should be a curvilinear hump-shaped function of retention. A large-sample empirical exploration verifies the curvilinear relation. Copyright Academy of Economics and Finance 2004

Suggested Citation

  • Richard Robinson & Mary Robinson & Chien-Chih Peng, 2004. "Underpricing and IPO ownership retention," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(1), pages 132-146, March.
    • Handle: RePEc:spr:jecfin:v:28:y:2004:i:1:p:132-146
    DOI: 10.1007/BF02761460
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    References listed on IDEAS

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    1. Keasler, Terrill R, 2001. "Underwriter Lock-up Releases, Initial Public Offerings and After-Market Performance," The Financial Review, Eastern Finance Association, vol. 36(2), pages 1-20, May.
    2. How, Janice C. Y. & Low, Joy G., 1993. "Fractional ownership and underpricing: signals of IPO firm value?," Pacific-Basin Finance Journal, Elsevier, vol. 1(1), pages 47-65, March.
    3. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    5. Loughran, Tim & Ritter, Jay R, 1997. "The Operating Performance of Firms Conducting Seasoned Equity Offerings," Journal of Finance, American Finance Association, vol. 52(5), pages 1823-1850, December.
    6. Downes, David H & Heinkel, Robert, 1982. "Signaling and the Valuation of Unseasoned New Issues," Journal of Finance, American Finance Association, vol. 37(1), pages 1-10, March.
    7. Brennan, M. J. & Franks, J., 1997. "Underpricing, ownership and control in initial public offerings of equity securities in the UK," Journal of Financial Economics, Elsevier, vol. 45(3), pages 391-413, September.
    8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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    Cited by:

    1. Mary Robinson & Richard Robinson, 2012. "Dutch-auction IPOs: institutional development and underpricing performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 521-554, July.
    2. Killins, Robert N., 2019. "An investigation of the short-term performance of the Canadian IPO market," Research in International Business and Finance, Elsevier, vol. 47(C), pages 102-113.
    3. Faysal Ahmad Khan & Tasruma Sharmeen Chowdhury, 2017. "Modelling of IPO Underpricing in Bangladesh," International Journal of Business and Social Research, LAR Center Press, vol. 7(7), pages 1-10, July.
    4. Elvira Tiziana La Rocca, 2016. "Ipo, Underpricing e Corporate governance: una meta analisi," ESPERIENZE D'IMPRESA, FrancoAngeli Editore, vol. 2016(1), pages 41-64.
    5. Tiziana La Rocca, 2021. "Do prestigious underwriters shape IPO pricing? A meta-analytic review," Review of Managerial Science, Springer, vol. 15(3), pages 573-609, April.
    6. Faysal Ahmad Khan & Tasruma Sharmeen Chowdhury, 2017. "Modelling of IPO Underpricing in Bangladesh," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 7(7), pages 1-10, July.

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