Hostname: page-component-7dd5485656-wjfd9 Total loading time: 0 Render date: 2025-10-30T19:27:22.714Z Has data issue: false hasContentIssue false
  • English
  • Français

Partial Adjustment to Public Information and IPO Underpricing

Published online by Cambridge University Press:  06 April 2009

Daniel J. Bradley  and
Bradford D. Jordan
Daniel J. Bradley
Affiliation:
dbradle@clemson.edu, Clemson University, College of Business and Behavioral Science, 324B Sirrine Hall, Clemson, SC 29634
Bradford D. Jordan
Affiliation:
bjordan@uky.edu, University of Kentucky, Gatton College of Business and Economics, 445 Gatton Business and Economics Building, Lexington, KY 40506.
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the extent to which offer prices reflect public information for 3,325 IPOs over the period 1990–1999. We focus primarily on four variables: share overhang, file range amendments, venture capital backing, and previous issue underpricing. We show that 35%–50% of the variation in IPO underpricing can be predicted using public information known before the offer date and therefore conclude that IPO offer prices underadjust to widely available public information to a much greater extent than previously documented.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 4 , December 2002 , pp. 595 - 616
Copyright
Copyright © School of Business Administration, University of Washington 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Barry, C. ’Initial Public Offering Underpricing: The Issuer's View-A Comment.” Journal of Finance, 54 (1989), 1099–1103.Google Scholar
Barry, C.; Muscarella, C.; Peavy, J. III; and Vetsuypens, M.. “The Role of Venture Capital in the Creation of Public Companies.” Journal of Financial Economics, 27 (1990), 447–471.CrossRefGoogle Scholar
Beatty, R., and Welch, I.. “Issuer Expenses and Legal Liability in Initial Public Offerings.” Journal of Law and Economics, 39 (1996), 545–603.CrossRefGoogle Scholar
Benveniste, L., and Spindt, P.. “How Investment Bankers Determine the Offer Price and Allocation of New Issues.” Journal of Financial Economics, 24 (1989), 343–361.CrossRefGoogle Scholar
Bradley, D.; Jordan, B.; Roten, I.; and Yi, H.. “Venture Capital and IPO Lockup Expiration: An Empirical Analysis.” Journal of Financial Research, 24 (2001), 465–493.CrossRefGoogle Scholar
Brav, A., and Gompers, P.. “The Role of Lock-ups in Initial Public Offerings.” Review of Financial Studies (forthcoming 2002).Google Scholar
Carter, R.; Dark, F.; and Singh, A.. “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks.” Journal of Finance, 53 (1998), 285–311.CrossRefGoogle Scholar
Field, L., and Hanka, G.. “The Expiration of IPO Share Lockups.” Journal of Finance, 56 (2001), 471–500.CrossRefGoogle Scholar
Habib, M., and Ljungqvist, A.. “Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence.” Review of Financial Studies, 14 (2001), 433–458.CrossRefGoogle Scholar
Hamao, Y.; Packer, F.; and Ritter, J.. “Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan.” Pacific-Basin Finance Journal, 8 (2000), 529–558.CrossRefGoogle Scholar
Hanley, K. “The Underwriting of Initial Public Offerings and the Partial Adjustment Phenomenon.” Journal of Financial Economics, 34 (1993), 231–250.CrossRefGoogle Scholar
Ibbotson, R., and Jaffe, J.. “‘Hot Issue’ Markets.” Journal of Finance, 30 (1975), 1027–1042.Google Scholar
Jegadeesh, N.; Weinstein, M.; and Welch, I.. “An Empirical Investigation of IPO Returns and Subsequent Equity Offerings.” Journal of Financial Economics, 34 (1993), 153–175.CrossRefGoogle Scholar
Loughran, T., and Ritter, J.. “Why Don't Issuers Get Upset about Leaving Money on the Table in IPOs?” Review of Financial Studies, 15 (2002), 413–443.CrossRefGoogle Scholar
Lowry, M., and Schwert, W.. “IPO Market Cycles: Bubbles or Sequential Learning?” Journal of Finance, 57 (2002), 1171–1200.CrossRefGoogle Scholar
Mayers, D. “Why Firms Issue Convertible Bonds: The Matching of Financial and Real Investment Options.” Journal of Financial Economics, 47 (1998), 83–102.CrossRefGoogle Scholar
Megginson, W., and Weiss, K.. “Venture Capitalist Certification in Initial Public Offerings.” Journal of Finance, 46 (1991), 29–48.CrossRefGoogle Scholar
Ritter, J. “The Hot Issue Market of 1980.” Journal of Business, 57 (1984), 215–239.CrossRefGoogle Scholar
Ritter, J. “Investment Banking and Securities Issuance.” In Handbook of Economics of Finance, Constantinides, G., Harris, M., and Stulz, R., eds. Amsterdam, Netherlands: North-Holland (forthcoming 2002).Google Scholar
Rock, K. “Why New Issues are Underpriced.” Journal of Financial Economics, 15 (1986), 187–212.CrossRefGoogle Scholar
Sahlman, W. “Aspects of Financial Contracting in Venture Capital. Journal of Applied Corporate Finance, 1 (1988), 23–36.CrossRefGoogle Scholar
Schultz, P. “Unit Initial Public Offerings.” Journal of Financial Economics, 34 (1993), 199–229.CrossRefGoogle Scholar
Smart, S., and Zutter, C.. “Control as a Motivation for Underpricing: A Comparison of Dual- and Single-Class IPOs.” Journal of Financial Economics (forthcoming 2002).CrossRefGoogle Scholar