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Underpricing, Stabilization, and Governance

31 Pages Posted: 25 Aug 2005  

Chad J. Zutter

University of Pittsburgh - Finance Group

Scott Smart

Indiana University - Kelley School of Business - Department of Finance

Date Written: August 12, 2005


Arugaslan, Cook, and Kieschnick (2004) challenge underpricing results obtained from conventional cross-sectional regression analysis on the grounds that standard methods fail to properly account for underwriter price stabilization and adequately capture variations in information asymmetries related to firm size. We find that results from the long-standing methods for estimating underpricing relations are robust to one's choice of size proxy. We obtain consistent estimates of underpricing determinants from censored regressions of first-day returns and from least squares regressions of longer horizon returns, whereas estimates from the mixed distribution proposed by Arugaslan et al. are sensitive to distribution assumptions and starting values.

Keywords: Initial public offerings (IPO), Underpricing, Dual class, Ownership structure, Governance, Price stabilization, Mixed distribution, Censored distribution

JEL Classification: G24, G32, G34, G38, K22, C16, C34

Suggested Citation

Zutter, Chad J. and Smart, Scott, Underpricing, Stabilization, and Governance (August 12, 2005). Available at SSRN: or

Chad J. Zutter (Contact Author)

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)


Scott B. Smart

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Kelley School of Business
Bloomington, IN 47405
United States
812-855-3401 (Phone)
812-855-5875 (Fax)

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