The interplay of IPO underpricing and offer size

45 Pages Posted: 7 Feb 2019 Last revised: 18 May 2020

See all articles by Lars Bannenberg

Lars Bannenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Delft University of Technology

Nico van der Sar

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: January 24, 2019

Abstract

This paper examines the size-return relationship in the primary stock market. For 529 Japanese IPOs between 2010 and 2018, we empirically argue that the channel which connects offer size and underpricing is information-based and bidirectional. We find an endogenous effect of both offer and firm size due to simultaneity and an exogenous effect of relative size measured by the percentage free float of the offer. Furthermore, we find evidence consistent with the view that primary shares are offered to rebalance capital structure and secondary shares to increase free float.

Keywords: IPO, Underpricing, Offer Proceeds, Capital Structure, Endogeneity

JEL Classification: G14, G32

Suggested Citation

Bannenberg, Lars and van der Sar, Nico, The interplay of IPO underpricing and offer size (January 24, 2019). Available at SSRN: https://ssrn.com/abstract=3322012 or http://dx.doi.org/10.2139/ssrn.3322012

Lars Bannenberg (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Burgemeester Oudlaan 50
Rotterdam, 3000DR
Netherlands

Delft University of Technology ( email )

Mekelweg 15
Delft, 2629 JB
Netherlands

Nico Van der Sar

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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