IPO Underpricing Over the Very Long Run

56 Pages Posted: 20 Mar 2006 Last revised: 20 Mar 2016

David Chambers

University of Cambridge - Judge Business School, Department of Finance & Accounting

Elroy Dimson

University of Cambridge - Judge Business School; London Business School

Date Written: March 1, 2009

Abstract

A central measure of the efficiency of the Initial Public Offering (IPO) market is the extent to which issues are underpriced. Legal, regulatory, disclosure and underwriting pressures have moulded the IPO market since World War II. This paper presents new and comprehensive evidence covering British IPOs since World War I. We find that during the period from 1917 to 1945, public offers were underpriced by an average of only 3.80%, as compared to 9.15% in the period from 1946 to 1986, and even more after the UK stock market was deregulated in 1986. The post-WWII rise in underpricing cannot be attributed to changes in firm composition, and occurred in spite of improvements in regulation, disclosure, and the prestige of IPO underwriters.

Keywords: Initial public offering, underpricing, regulation, investor protection, financial history

JEL Classification: G18, G24, G32, N24

Suggested Citation

Chambers, David and Dimson, Elroy, IPO Underpricing Over the Very Long Run (March 1, 2009). Journal of Finance, Vol. 64, No. 3, June 2009, pages 1407–1443 . Available at SSRN: https://ssrn.com/abstract=889542

David Chambers

University of Cambridge - Judge Business School, Department of Finance & Accounting ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44 (0)1223 339700 (Phone)

Elroy Dimson (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 20 7000 8212 (Phone)
+44 700 607 7390 (Fax)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
44 20 7000 7000 (Phone)
44 700 607 7390 (Fax)

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