The Role of Information in IPO Underpricing: Implications from Refiling Behavior in the IPO Pricing Process
37 Pages Posted: 21 Nov 2004
Date Written: November 2004
This paper investigates the refiling behavior (updating a new price range in later amendments before the final prospectus) in the price-setting process of initial public offerings (IPOs). 185 out of 422 IPOs in our sample (43.8%) have refiled at least once during their pricing period. We concentrate on the probability of refiling and an empirical comparison between the refiling and non-refiling IPOs. Our empirical results show that the refiling behavior is predictable at a conventional level. The refiling behavior of IPOs results in 5% greater price revisions and 7% greater initial returns although the latter effects are indirect. The determinants of price revisions for the refiling IPOs are consistent with previous literature, while those of the non-refiling IPOs exhibit considerable difference. Moreover, these empirical results support one of the potential rationales underlying the refiling behavior, i.e., refiling for information-acquisition. Limited evidence is found for the other hypotheses, such as refiling for uncertainty, quality signaling and the positive-feedback strategy. Two key implications emerge: first, the IPO pricing process is not as universal as we expect; and second, underwriters may play a different role in the IPO price-setting process for the two groups.
Keywords: IPOs, underpricing, refiling, information acquisition, signal, strategy
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