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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.
Listing delay has a negative effect on underpricing, that is, the firms with larger time gap between offer and listing tend to underprice more; however a positive effect of listing delay on long-run performance suggests that firms with larger delay have better performance in the long-run.
We expect RANGE to be positively related to Underprice. Finally, LgOffersize, the logarithm of offer amount, is used as an alternative measure of information asymmetry (Ritter, 1984).
At equilibrium, insiders of high-value firms underprice their IPOs to induce information production thereby obtaining a more precise valuation of their firm in the secondary market.
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.
(2) Thus, firms would rather underprice their issues to guard against such legal proceedings.
Underwriters, therefore, must discount (underprice) new issues to attract uniformed investors to the overall pool of potential investors (Rock, 1986).
Rupert Pontin, Glass's specialist car editor, said: 'Jaguar has used the BMW as a benchmark and tried to underprice and out-spec it version for version.
Bowen, Chen, and Cheng (2008) argue that greater analyst coverage reduces information asymmetry among investors and, as such, the need to underprice. They find that firms followed by analysts who work for the lead underwriter or analysts with superior ability exhibit lower SEO underpricing.
Rock's (1986) seminal paper suggests that firms underprice at least in part due to information asymmetry concerns surrounding new issues.
Lowry and Shu (2002) find that firms with high litigation risk underprice their IPOs more than firms facing low litigation risk.