Value Gains on Flotation and IPO Underpricing

:  Utilising a unique dataset of 502 UK IPOs we undertake an empirical analysis of the relationship between underpricing and value gains on flotation. We find support for our hypothesis that IPO underpricing is related to the extent of anticipated value gains on the private to public transition. We...

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Bibliographic Details
Published in:Journal of business finance & accounting 2006-11, Vol.33 (9-10), p.1435-1459
Main Authors: Hill, Paula, Wilson, Nicholas
Format: Article
Language:English
Subjects:
Accounting
Business studies
Capital gains
Corporate finance
Correlation analysis
Data analysis
Empirical research
Financial analysis
Flotation
Gains
incentives to underprice
Initial public offering
Initial public offerings
IPO
Pricing
Pricing policies
private to public transition
Public-private partnership
Studies
underpricing
Value
value gain on listing
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Summary::  Utilising a unique dataset of 502 UK IPOs we undertake an empirical analysis of the relationship between underpricing and value gains on flotation. We find support for our hypothesis that IPO underpricing is related to the extent of anticipated value gains on the private to public transition. We analyse alternative driving mechanisms behind this relationship, and our results suggest that the underpricing of IPOs is driven by both underwriters and issuing company directors, each of whom derive net benefits over the longer term from underpricing at the IPO.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.2006.00643.x