Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets

41 Pages Posted: 2 May 2006 Last revised: 6 Jul 2009

See all articles by Arif Khurshed

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: April 1, 2006

Abstract

IPOs on the EuroNMs have shown very high underpricing. The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options. We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marché of France. We find that the high underpricing in these two markets - contrary to the evidence on the US - is not driven by insiders' selling behaviour. However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares. In contrast, venture-capital involvement does not affect underpricing. For France, lock-up agreements act as substitutes to underpricing, but not so for Germany. We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.

Keywords: IPOs, underpricing, venture capital, high technology, European New Markets, lock-up agreements

JEL Classification: G14, G24

Suggested Citation

Khurshed, Arif and Goergen, Marc and Renneboog, Luc, Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets (April 1, 2006). International Review of Law and Economics, Forthcoming; TILEC Discussion Paper No. 2009-022. Available at SSRN: https://ssrn.com/abstract=899071

Arif Khurshed

University of Manchester - Manchester Business School, Division of Accounting Finance ( email )

Crawford House
Oxford Road
Manchester, M15 6PB
United Kingdom
+44 0 161 275 4475 (Phone)
+44 0 161 275 4023 (Fax)

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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