IPO Underpricing and Outside Blockholdings

Posted: 22 Jul 2003

See all articles by Laura Casares Field

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Dennis P. Sheehan

Pennsylvania State University

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Abstract

Recent papers have proposed a link between underpricing of an initial public offering (IPO) and the resulting ownership structure of the firm. Brennan and Franks (1997) hypothesize that IPO managers want to discourage new blockholdings to reduce the likelihood of being monitored. They show that underpricing encourages oversubscription, allowing discrimination against large blockholders. Conversely, Stoughton and Zechner (1997) hypothesize that managers underprice to encourage investment by blockholders, who provide monitoring services. We find that the link between underpricing and ownership structure is weak. Most firms have outside blocks in place at the IPO and retain them afterwards. In terms of acquiring new blockholders, there is no difference between firms that underprice and those that do not.

Keywords: Initial Public Offering, Underpricing, Blockholdings

JEL Classification: G00, G32, G3

Suggested Citation

Field, Laura Casares and Sheehan, Dennis P., IPO Underpricing and Outside Blockholdings. Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=408960

Laura Casares Field (Contact Author)

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Dennis P. Sheehan

Pennsylvania State University ( email )

Smeal College of Business
University Park, PA 16802
United States
814-863-8512 (Phone)
814-865-3362 (Fax)

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