The interplay of IPO underpricing and offer size
45 Pages Posted: 7 Feb 2019 Last revised: 18 May 2020
Date Written: January 24, 2019
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
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