55 PagesPosted: 18 Sep 2002
See all articles by Tim Loughran
Tim Loughran
University of Notre Dame
Jay R. Ritter
University of Florida - Department of Finance, Insurance and Real Estate
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Why Has IPO Underpricing Changed Over Time?
Number of pages: 55Posted: 18 Sep 2002
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Why Has IPO Underpricing Changed Over Time?
Number of pages: 34Posted: 20 Aug 2004
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Date Written: December 3, 2002
Abstract
In the 1980s, the average first-day return on initial public offerings (IPOs) was 7%. The average first-day return doubled to almost 15% during 1990-1998, before jumping to 65% during the internet bubble years of 1999-2000. Part of the increase can be attributed to changes in the risk composition of the companies going public and a realignment of incentives. We attribute much of the higher underpricing during the bubble period to a changing issuer objective function. We argue that in the later periods there was less focus on maximizing IPO proceeds due to both an increased emphasis on research coverage and allocations of hot IPOs to the personal brokerage accounts of issuing firm executives.
Keywords: Initial public offerings, internet bubble, underwriter reputation, spinning
Suggested Citation:Suggested Citation
Loughran, Tim and Ritter, Jay R., Why Has IPO Underpricing Changed Over Time? (December 3, 2002). Available at SSRN: https://ssrn.com/abstract=331780 or http://dx.doi.org/10.2139/ssrn.331780
Tim Loughran (Contact Author)
University of Notre Dame ( email )
Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)
Jay R. Ritter
University of Florida - Department of Finance, Insurance and Real Estate ( email )
P.O. Box 117168
Gainesville, FL 32611
United States
(352) 846-2837 (Phone)
(352) 392-0301 (Fax)
