Abstract

http://ssrn.com/abstract=900723
 
 

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Ipo Underpricing and After-Market Liquidity


Andrew Ellul


Indiana University - Kelley School of Business - Department of Finance

Marco Pagano


University of Naples Federico II - Department of Economics and Statistics; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

2006

The Review of Financial Studies, Vol. 19, Issue 2, pp. 381-421, 2006

Abstract:     
The underpricing of initial public offerings (IPOs) is generally explained with asymmetric information and risk. We complement these traditional explanations with a new theory where investors worry also about the after-market illiquidity that may result from asymmetric information after the IPO. The less liquid the aftermarket is expected to be, and the less predictable its liquidity, the larger will be the IPO underpricing. Our model blends such liquidity concerns with adverse selection and risk as motives for underpricing. The model's predictions are supported by evidence for 337 British IPOs effected between 1998 and 2000. Using various measures of liquidity, we find that expected after-market liquidity and liquidity risk are important determinants of IPO underpricing.

Accepted Paper Series


Not Available For Download

Date posted: February 29, 2008  

Suggested Citation

Ellul, Andrew and Pagano, Marco, Ipo Underpricing and After-Market Liquidity ( 2006). The Review of Financial Studies, Vol. 19, Issue 2, pp. 381-421, 2006. Available at SSRN: http://ssrn.com/abstract=900723 or http://dx.doi.org/10.1093/rfs/hhj018

Contact Information

Andrew Ellul (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

Marco Pagano
University of Naples Federico II - Department of Economics and Statistics ( email )
Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)
Einaudi Institute for Economics and Finance (EIEF)
Via Sallustiana, 62
Rome, 00187
Italy
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http:/www.ecgi.org
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