IPO Pricing in the Dot-Com Bubble: Complacency or Incentives?

Abstract:     
IPO initial returns reached astronomical levels during 1999-2000. We show that the regime shift in initial returns and other elements of pricing behavior can be at least partially accounted for by a variety of marked changes in pre-IPO ownership structure and insider selling behavior over the period which reduced key decision-makers' incentives to control underpricing. After controlling for these changes, there appears to be little special about the 1999-2000 period, aside from the preponderance of internet and high-tech firms going public. Our results suggest that it was firm characteristics that were unique during the "dot-com bubble" and that pricing behavior followed from incentives created by these characteristics.

Keywords: Initial public offerings, Underpricing, Intermediation, Internet, Hot issue markets

JEL Classifications: G32, G24

Working Paper Series