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8) As no significant relation is found between ownership concentration and underpricing, we cannot support the opposite theory of Stoughton and Zechner (1998), who suggest that IPO firms underprice their stocks at issuance to create a more concentrated ownership structure.
If there is a tendency for government officials to underprice IPOs to a greater extent than private issuers, no conclusive evidence was obtained from this study.
The results show that, listing delay is negatively related to underpricing implying that the IPOs that take more time to list after the offering underprice less as compared to those for which the gap between offer and listing is less.
The results show that firms have incentives to underprice IPO shares in order to induce the positive impact of market forces such as the valuation difference among investors in the pre-selling period or increased liquidity on the end-of-period price.
Hence, companies with less information will underprice their securities at the IPO to compensate investors for investing in relatively riskier stocks.
Recent research, however, suggests that the increasing importance of analyst coverage of IPOs may lead influential underwriters to underprice more severely (e.
In his model, higher quality firms underprice IPO shares more heavily than do lower quality firms, but they recoup the underpricing costs in subsequent seasoned equity offerings (SEOs).
Lowry and Shu (2002) find that firms with high litigation risk underprice their IPOs more than firms facing low litigation risk.
Its success will depend on two factors: One relates to the agreement with the price underwriter regarding the amount and type of stock to be offered, especially since there is strong evidence to suggest that investment bankers tend to underprice new offerings, possibly to provide their customers buying the stock a better "deal" (Petty, 1994, p.
A few examples include Brennan and Franks (1997), who suggest that insiders opportunistically underprice their IPO to discourage the formation of large, external blockholdings; Field and Karpoff (2002), who report that entrepreneurs often adopt anti-takeover measures prior to the IPO; and Smart and Zutter (2003), who find that a significant fraction of IPO firms employ dual-class capital structures.
The medical-malpractice line has suffered from escalating premiums and underwriting woes carried over from the soft market of the 1990s that saw many insurers underprice coverage.
However, Loughran and Ritter (2004) argue that since underwriters receive compensation from both issuers and investors, they have an incentive to underprice issues in order to keep retail clients happy.