Initial Public Offering (IPO) and theories of underpricing

Essai , 2006 , 20 Pages , Note: 1,3

Gestion d'entreprise - Banque, Bourse, Assurance

Related to the issuance of shares there are different kinds of “puzzles” which motivate to take a closer look at: Short-run ‘underpricing’, hot and cold issue markets, spread clustering and longrun underperformance. Even though these phenomena are frequently discussed in several scientific papers and journals, there is no conclusively completed theory. This work will concentrate on the various approaches developed to explain ‘underpricing’. As an introduction into the topic it will also provide a summary of the process of an Initial Public Offering (IPO).

Inhaltsverzeichnis (Table of Contents)

• Introduction
• The Process of an IPO
• The 'Underpricing' Phenomenon
• Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This essay aims to explain the process of an Initial Public Offering (IPO) and critically analyze various theories explaining the apparent 'underpricing' of IPOs. It explores the puzzle of IPO underpricing, hot and cold issue markets, spread clustering, and long-run underperformance.

• The process of an IPO, including the role of investment banks and different methods like bookbuilding, fixed price, and auction.
• The 'underpricing' phenomenon, which refers to the difference between the IPO price and the first trading price on the stock market.
• Various theories that have been proposed to explain IPO underpricing, such as information asymmetry, market signaling, and winner's curse.
• The motivations and reasons behind companies going public, including minimizing capital costs, exiting venture capitalists, facilitating mergers and acquisitions, and diversifying ownership structure.
• Different practices used in the IPO process, including bookbuilding, fixed price, and auction methods.

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: This chapter introduces the 'puzzles' related to IPOs, including short-run underpricing, hot and cold issue markets, spread clustering, and long-run underperformance. It highlights the lack of a conclusive theory and focuses on various approaches to explain underpricing. The chapter also provides a summary of the IPO process.
• The Process of an IPO: This chapter defines an IPO and describes the process of going public, highlighting the key stages and players involved. It discusses different motivations for companies to go public, including minimizing capital costs, exiting venture capitalists, and facilitating mergers and acquisitions. The chapter also explores the role of investment banks, the different pricing methods, and the 'bookbuilding' process.

Schlüsselwörter (Keywords)

The main keywords and focus topics of this text include: Initial Public Offering (IPO), underpricing, information asymmetry, market signaling, winner's curse, bookbuilding, fixed price, auction, investment banks, venture capitalists, mergers and acquisitions, hot and cold issue markets, spread clustering, long-run underperformance.

• Université: University of Glasgow (Department of Accounting and Finance)
• Cours: Financial Markets
• Note: 1,3
• Auteur: Henning Padberg (Auteur)
• Année de publication: 2006
• Pages: 20
• N° de catalogue: V79585
• ISBN (ebook): 9783638868686
• Langue: anglais
• mots-clé: Initial, Public, Offering, Financial, Markets