IPO Underpricing Over the Very Long Run
56 Pages Posted: 20 Mar 2006 Last revised: 20 Mar 2016
Date Written: March 1, 2009
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: Suggested Citation