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Offer Price, Target Ownership Structure and IPO Performance


  • Chitru S. Fernando
  • Srinivasan Krishnamurthy
  • Paul A. Spindt


Although the choice of an IPO offer price level would seem to have little economic significance, firms do not decide this arbitrarily. Our findings suggest that firms select their IPO offer prices to target a desired ownership structure, which in turn has implications for underpricing and post-IPO performance. Higher priced IPOs are marketed by more reputed underwriters and attract a relatively larger institutional investment. These IPOs are relatively more underpriced, possibly as compensation for the monitoring and information benefits provided by institutional investors. IPOs whose offer prices are below the median level seem to be targeted towards a retail investor clientele. These IPOs are also relatively more underpriced, possibly as a cost of adverse selection. Our finding that long-run performance increases with offer price confirms that higher priced IPOs are better firms.

Suggested Citation

  • Chitru S. Fernando & Srinivasan Krishnamurthy & Paul A. Spindt, 1999. "Offer Price, Target Ownership Structure and IPO Performance," Center for Financial Institutions Working Papers 99-36, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:99-36

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    References listed on IDEAS

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    Cited by:

    1. Daniel Konku & Vivek Bhargava, 2012. "IPO underpricing and their determinants: penny stocks versus non-penny stocks," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 3(1), pages 69-88.
    2. Boudriga, Abdelkader & Ben Slama, Sarra & Boulila, Neila, 2009. "What determines IPO underpricing ? Evidence from a frontier market," MPRA Paper 18069, University Library of Munich, Germany.

    More about this item


    Initial public offerings; share prices; share allocation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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