Penny Stock Ipos
40 Pages Posted: 8 Nov 2005
Date Written: July 15, 2005
We examine underpricing, long-run returns, lockup periods, and gross spreads for penny stock IPOs over the 1990-1998 period. We find that penny stock IPOs have higher initial returns than ordinary IPOs, but significantly worse long-run underperformance. We also find that penny stock IPOs have longer lockup periods and larger gross spreads. To explore the effect of potential market manipulation, we examine IPOs led by a group of underwriters that were the subject of SEC enforcement actions and/or other penalties. Penny stock issues led by these banks are particularly underpriced and underperform ordinary IPOs led by other underwriters.
Keywords: penny stock, IPO, manipulation
JEL Classification: G24
Suggested Citation: Suggested Citation