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Non-proportional thinking in IPOs

Author

Listed:
  • Sylvain Bourjade
  • Annalisa Fraccaro
  • Debrah Meloso
  • Roman Skripnik
  • David Stolin

Abstract

The fact that initial-to-final IPO price revision ratios are strong predictors of IPO underpricing is well known to researchers. Our study documents that the dollar amount of the price revision matters above and beyond the revision ratio, and dramatically so. Immediately following the IPO, market participants appear to see a positive signal in greater dollar amount revisions, even if holding price revision ratios equal. This extends Shue and Townsend (Journal of Finance, 2021) finding of market participants’ ‘non-proportional thinking’ to the IPO setting. It also implies that the dollar amount of price revision deserves attention from future IPO researchers, particularly when studying the determinants of IPO underpricing.

Suggested Citation

  • Sylvain Bourjade & Annalisa Fraccaro & Debrah Meloso & Roman Skripnik & David Stolin, 2023. "Non-proportional thinking in IPOs," Applied Economics, Taylor & Francis Journals, vol. 55(2), pages 146-154, January.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:2:p:146-154
    DOI: 10.1080/00036846.2022.2074357
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