IPO Underpricing Over the Very Long Run
University of Cambridge - Judge Business School, Department of Finance & Accounting
London Business School; University of Cambridge - Judge Business School
Journal of Finance, Forthcoming
A central measure of the efficiency of the Initial Public Offering (IPO) market is the extent to which issues are underpriced. Legal, regulatory, disclosure and underwriting pressures have moulded the IPO market since World War II. This paper presents new and comprehensive evidence covering British IPOs since World War I. We find that during the period from 1917 to 1945, public offers were underpriced by an average of only 3.80%, as compared to 9.15% in the period from 1946 to 1986, and even more after the UK stock market was deregulated in 1986. The post-WWII rise in underpricing cannot be attributed to changes in firm composition, and occurred in spite of improvements in regulation, disclosure, and the prestige of IPO underwriters.
Number of Pages in PDF File: 56
Keywords: Initial public offering, underpricing, regulation, investor protection, financial history
JEL Classification: G18, G24, G32, N24Accepted Paper Series
Date posted: March 20, 2006 ; Last revised: September 29, 2012
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