Deal Flow and the Pricing of IPOs

Abstract

This study examines how the decisions that issuers and their investment banks make about IPO pricing are affected by the value of deals in registration, measured at the aggregate, industry and bank level both as of the filing date and the offering date (in order to identify changes in the IPO pipeline over the issuance process). Examining 1684 IPOs from1998-2007 we find evidence that measure of the IPO pipeline significantly affect pricing decisions. The evidence is mostly consistent with agency-based arguments that investment banks with large and growing pipelines of deals partially adjust prices given market information but also leave more money on the table. While harming issuers, this both helps clear their pipeline of deals, and attracts institutional clientele ensuring the banks can sell their backlog of deals.

Keywords: Initial public offerings, information spillovers, investment banks, value in registration, price adjustments

JEL Classification: G24, G32, C21, C25