Why Was Internet IPO Underpricing so Severe?

48 Pages Posted: 4 Oct 2001

See all articles by Larry DuCharme

Larry DuCharme

University of Washington

Shivaram Rajgopal

Columbia Business School

Stephan Sefcik

University of Washington - Department of Accounting

Date Written: September 2001

Abstract

We examine several explanations drawn from prior academic research and current popular press anecdotes for the unprecedented level of underpricing in Internet IPOs. Our sample consists of 342 Internet firms that went public between 1988 and 1999 and a matched sample of 249 non-Internet IPOs. The desire to make a seasoned equity offer (SEO), the presence of high quality underwriters, and greater media exposure pre-IPO are uniquely associated with Internet IPO underpricing. Post-offer return performance is worse for hot Internet IPOs that receive more media attention before the IPO date. Matched IPOs backed by high quality underwriters perform relatively well in the post-offer period although there is no association between underwriter quality and the long-run performance of Internet IPOs.

JEL Classification: G12, G24, G14, M41

Suggested Citation

DuCharme, Larry and Rajgopal, Shivaram and Sefcik, Stephan E., Why Was Internet IPO Underpricing so Severe? (September 2001). Available at SSRN: https://ssrn.com/abstract=285986 or http://dx.doi.org/10.2139/ssrn.285986

Larry DuCharme

University of Washington ( email )

Box 353200
School of Business Administration 231 Mackenzie Hall
Seattle, WA 98195-3200
United States

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Stephan E. Sefcik

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

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