Does an IPO Issuer’s SEC Registration Fee Calculation Method Predict Pricing Revisions and IPO Underpricing?

Abstract

This paper proposes a new proxy for the ex-ante expectations of issuers and their underwriters about the direction of pricing revisions during the roadshows of an initial public offering (IPO): the way issuers elect to calculate the registration fees owed to the Securities and Exchange Commission. Consistent with fee-minimizing decision-making, I find that the choice of fee calculation method is associated with pricing revisions and IPO underpricing. This relationship suggests that issuers or their advisors may not incorporate economically significant private valuation information into the initial pricing range estimate and initial public offering price. The results provide empirical support for theoretical models of partial adjustment and IPO underpricing driven by the preferences of underwriters or managers of issuers for underpriced IPOs.

Keywords: initial public offerings, IPO underpricing, bookbuilding, underwriters

JEL Classification: K20, G10, G20, G41