Why Don't Issuers Get Upset About IPO Underpricing? Evidence from the Loan Market

52 Pages Posted: 26 Jan 2018 Last revised: 17 Sep 2020

See all articles by Xunhua Su

Xunhua Su

Norwegian School of Economics (NHH)

Donghang Zhang

University of South Carolina

Xiaoyu Zhang

Vrije Universiteit Amsterdam (VU Amsterdam)

Date Written: June 20, 2020

Abstract

This paper provides evidence on the loan market benefits of IPO underpricing. We show that higher underpricing is associated with a significantly larger reduction of the issuer's post-IPO borrowing costs. The resulting interest savings are substantial, on average USD 3 million per year. Neither price revision before the IPO nor the first-week or -month stock return after the IPO has a similar effect, suggesting that underpricing plays a unique role in reducing the issuer's borrowing costs. The effect is concentrated in firms with a high demand for advertisements, suggesting that underpricing affects borrowing costs likely through a marketing channel.

Keywords: IPO, Underpricing, Syndicated Loans, Loan Spreads, Borrowing Costs

Suggested Citation

Su, Xunhua and Zhang, Donghang and Zhang, Xiaoyu, Why Don't Issuers Get Upset About IPO Underpricing? Evidence from the Loan Market (June 20, 2020). Available at SSRN: https://ssrn.com/abstract=3110057 or http://dx.doi.org/10.2139/ssrn.3110057

Xunhua Su

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://sites.google.com/site/xunhuasu/

Donghang Zhang

University of South Carolina ( email )

1014 Greene Street
Darla Moore Sch
Columbia, SC SC 29208
United States
8037770242 (Phone)
29208 (Fax)

HOME PAGE: http://https://sc.edu/study/colleges_schools/moore/directory/zhang_donghang.php

Xiaoyu Zhang (Contact Author)

Vrije Universiteit Amsterdam (VU Amsterdam) ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

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