The Initial Public Offering (IPO) which marks one the most important events of a
company basically aims to generate maximum proceeds by selling company’s shares
to investors. Nevertheless, the shares they sell often seem to be underpriced, insofar
that the price significantly soars on the first trading day. Consequently, the company
generates fewer proceeds and, hence “leaves money on the table.”
Since the very first detection of this phenomenon in the United States in 1969, several
subsequent studies documented the existence of worldwide IPO underpricing nowadays.
Considering that underpricing is costly for the company, a question arises
why, therefore, despite the fact that the companies “leave money on the table”, they
do not try to avoid this by setting the issuing price on the very high?
One of the most striking features of this question is that it had inspired many researchers
who tried to explain in various models why IPOs are generally underpriced.
Besides, a lot of theoretical explanations concerning this phenomenon have
been given by now; however, no common sense has been so far developed.[...]
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Problem Statement
- Initial Public Offerings
- Typology and Motivation
- Disadvantages
- Going Public
- The IPO Process
- Exchange Listing
- Requirements in Europe
- Requirements in the U.S.
- IPO Underpricing
- Definition
- Motivation and Impact
- Information Asymmetry
- Institutional Explanations
- Ownership and Control models
- Behavioral Explanations
- Evidence of IPO Underpricing
- The European Stock Market
- Data Base and Descriptive Statistics
- Interpretation
- The U.S. Stock Market
- Data Base and Descriptive Statistics
- Interpretation
- Consequences
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This master's thesis aims to investigate the phenomenon of IPO underpricing in both European and US stock markets. It seeks to analyze the various factors contributing to this underpricing, examining both theoretical explanations and empirical evidence. * Examination of the IPO process in European and US markets. * Analysis of the causes of IPO underpricing, including information asymmetry and behavioral factors. * Comparison of IPO underpricing trends in the European and US markets. * Evaluation of the consequences of IPO underpricing for various stakeholders. * Discussion of relevant theoretical frameworks and models.Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This introductory chapter sets the stage for the thesis, outlining the problem of IPO underpricing and its significance in the context of European and US stock markets. It establishes the research question and methodology that will be used to analyze this complex phenomenon. The introduction provides a clear roadmap for the thesis, previewing the key chapters and their respective contributions to the overall analysis. Initial Public Offerings: This chapter provides a comprehensive overview of Initial Public Offerings (IPOs), including their typology, motivations, and inherent disadvantages. It meticulously details the IPO process across its four phases: preparation, structuring & valuation, marketing & roadshow, and pricing & trading. Furthermore, the chapter explores the specific listing requirements for IPOs in both European and U.S. markets, highlighting the differences and similarities in regulatory frameworks. The inclusion of both the European and U.S. perspectives offers a comparative analysis that forms a crucial foundation for understanding the subsequent analysis of IPO underpricing. IPO Underpricing: This chapter delves into the core concept of IPO underpricing, providing a precise definition and exploring the various factors contributing to it. The analysis critically examines information asymmetry between different groups of investors, including underwriters, issuers, and investors themselves. It then explores institutional explanations for underpricing, incorporating discussions on ownership and control models. The chapter concludes with an investigation into the role of behavioral factors and biases in influencing IPO pricing decisions, demonstrating a multifaceted understanding of this prevalent phenomenon. Evidence of IPO Underpricing: This chapter presents empirical evidence of IPO underpricing in both the European and U.S. stock markets. It describes the databases and descriptive statistics used in the analysis, presenting a detailed account of the data selection criteria and the methodology used for data analysis. Crucially, it interprets the results of this data analysis for both the European and U.S. markets, comparing and contrasting the observed patterns of underpricing. The chapter provides valuable insights into the real-world implications of the theoretical frameworks and models presented in earlier chapters.Frequently Asked Questions: A Comprehensive Language Preview
What is the overall topic of this document?
This document is a comprehensive language preview of a master's thesis investigating the phenomenon of Initial Public Offering (IPO) underpricing in both European and US stock markets. It provides a table of contents, objectives, key themes, chapter summaries, and keywords.
What are the main objectives of the thesis?
The thesis aims to investigate IPO underpricing in European and US markets, analyze contributing factors (including information asymmetry and behavioral factors), compare underpricing trends between the two markets, evaluate consequences for stakeholders, and discuss relevant theoretical frameworks.
What topics are covered in the "Initial Public Offerings" chapter?
This chapter offers a detailed overview of IPOs, including their types, motivations, disadvantages, and the four-phase IPO process (preparation, structuring & valuation, marketing & roadshow, pricing & trading). It also compares listing requirements in European and US markets.
What is discussed in the "IPO Underpricing" chapter?
This chapter defines IPO underpricing, explores contributing factors such as information asymmetry, institutional explanations (including ownership and control models), and behavioral explanations. It provides a multifaceted understanding of this phenomenon.
What kind of evidence is presented in the "Evidence of IPO Underpricing" chapter?
This chapter presents empirical evidence from both European and US stock markets. It details the databases used, descriptive statistics, data analysis methodology, and interpretations of results for both markets, comparing and contrasting underpricing patterns.
What is the structure of the document as shown in the table of contents?
The document is structured as follows: Introduction, Problem Statement, Initial Public Offerings (including typology, motivation, disadvantages, going public, the IPO process, exchange listing requirements in Europe and the U.S.), IPO Underpricing (including definition, motivation and impact, information asymmetry, institutional explanations, ownership and control models, behavioral explanations), and Evidence of IPO Underpricing (including European and U.S. stock market analyses, consequences).
What are the key themes explored in the thesis?
Key themes include the IPO process itself, the causes of IPO underpricing (information asymmetry, behavioral factors), a comparison of underpricing trends between Europe and the U.S., the consequences of underpricing, and relevant theoretical frameworks and models.
How are the chapter summaries structured?
Each chapter summary provides a concise overview of the chapter's content, highlighting its main contributions to the overall thesis. They provide a roadmap to the detailed analysis found within each chapter.
For whom is this document intended?
This document is intended for academic use, supporting the analysis of themes within a master's thesis on IPO underpricing. It provides a structured and professional overview of the research.
- Quote paper
- Oliver Reiche (Author), 2013, The Phenomenon of IPO Underpricing in the European and U.S. Stock Markets, Munich, GRIN Verlag, https://www.grin.com/document/229450
