UK IPO Underpricing: Venture Capitalists, High-Prestige Underwriters and the Bubble Period
50 Pages Posted: 27 Feb 2005
Date Written: February 2005
We analyse the short run underpricing anomaly for a unique sample of 569 IPOs on the London Stock Exchange for the period 1985-2000 and find significant differences between the 1985-1997 period and 1998-2000 bubble period. Venture capitalists played a certification role in the former period but this ceased during the bubble years. These years featured significant increases in the average IPO proceeds, money left on the table, underpricing and a decline in operating quality. Furthermore, venture capitalists increasingly used prestigious underwriters with a history of underpricing during 1998-2000 which supports the corruption hypothesis of Loughran and Ritter (2004).
Keywords: New issues puzzle, prospect theory; corruption hypothesis
JEL Classification: G24, G32
Suggested Citation: Suggested Citation