Underpricing of Initial Public Offerings and Due Diligence Costs: An Empirical Investigation

Company and Securities Law Journal, Vol. 13, No. 3, 1995

16 Pages Posted: 7 Aug 2006 Last revised: 19 Feb 2011

See all articles by Ian Ramsay

Ian Ramsay

Melbourne Law School - University of Melbourne

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

Abstract

This article reports the results of a study of the underpricing of initial public offerings under the Corporations Law. The authors commence by outlining a number of theories that have been advanced to explain the persistent underpricing of the issuing company's shares. The authors then examine whether the introduction of due diligence requirements in the Corporations Law, motivated as they were by a desire to provide more credible information to investors in prospectuses, may reduce investor uncertainty and hence, underpricing. The authors report average adjusted underpricing of 11 to 14 per cent in two samples of IPOs. However, they do not find evidence that increased due diligence is associated with lower underpricing of IPOs.

Suggested Citation

Ramsay, Ian and Sidhu, Baljit K., Underpricing of Initial Public Offerings and Due Diligence Costs: An Empirical Investigation. Company and Securities Law Journal, Vol. 13, No. 3, 1995. Available at SSRN: https://ssrn.com/abstract=922223

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

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