Summary of – Pre-and-aftermarket IPO Underpricing: Does Use of Proceeds Disclosure Matter?

Document Type

Article

Abstract

Initial Public Offerings (IPOs) have long been a subject of interest in finance research, particularly the phenomenon of underpricing - where the offer price is set below the market value, resulting in significant first-day returns. Understanding the factors that influence underpricing is crucial for issuers, investors, and regulators alike.

Research Goals and Hypotheses

To estimate voluntary and aftermarket underpricing in the context of IPO pricing in India.

Methodological Approach

A unique conceptual regulatory framework for IPO pricing in India

Results and Discoveries

Our main findings are as follows. First, we document that disclosure of specific use of proceeds increases actual voluntary underpricing (i.e., offer price being lower) in the premarket and lowers aftermarket underpricing (i.e., the first-day closing price is lower). Second, the premarket effect is pronounced for firms with greater information asymmetry, whereas the aftermarket effect is pronounced for firms with higher investor sentiment. Our core findings are robust to tests that mitigate endogeneity concerns. Collectively, we show that disclosure impacts underpricing differently in the pre- and aftermarket.

Citation to the base paper:

Ranganathan, K., & Veeraraghavan, M. (2023). Pre-and-aftermarket IPO underpricing: Does use of proceeds disclosure matter? Journal of Contemporary Accounting & Economics, 19(3), 100379. https://doi.org/10.1016/j.jcae.2023.100379

Publication Date

2023

Recommended Citation

Ranganathan, K., & Veeraraghavan, M. (2023). Pre-and-aftermarket IPO underpricing: Does use of proceeds disclosure matter? Journal of Contemporary Accounting & Economics, 19(3), 100379. https://doi.org/10.1016/j.jcae.2023.100379

Publication Date

2023

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