Ipo Underpricing During Bubble

Ipo underpricing during bubble

UK IPO Underpricing: Venture Capitalists, High-Prestige Underwriters and the Bubble Period

50 PagesPosted: 27 Feb 2005

Date Written: February 2005

Abstract

We analyse the short run underpricing anomaly for a unique sample of 569 IPOs on the London Stock Exchange for the period 1985-2000 and find significant differences between the 1985-1997 period and 1998-2000 bubble period.

Ipo underpricing during bubble

Venture capitalists played a certification role in the former period but this ceased during the bubble years. These years featured significant increases in the average IPO proceeds, money left on the table, underpricing and a decline in operating quality. Furthermore, venture capitalists increasingly used prestigious underwriters with a history of underpricing during 1998-2000 which supports the corruption hypothesis of Loughran and Ritter (2004).

Investing in Initial Public Offerings (IPOs)

Keywords: New issues puzzle, prospect theory; corruption hypothesis

JEL Classification: G24, G32

Suggested Citation:Suggested Citation

Hadass, Leon and Coakley, Jerry and Wood, Andrew, UK IPO Underpricing: Venture Capitalists, High-Prestige Underwriters and the Bubble Period (February 2005). Available at SSRN: https://ssrn.com/abstract=675101 or http://dx.doi.org/10.2139/ssrn.675101

Ipo underpricing during bubble