Variables Influencing the Severity of IPO Underpricing: An Empirical Analysis of the German Market
| Autor: | Justyna Dietrich |
|---|---|
| EAN: | 9783842822894 |
| eBook Format: | |
| Sprache: | Englisch |
| Produktart: | eBook |
| Veröffentlichungsdatum: | 01.07.2012 |
| Kategorie: | |
| Schlagworte: | IPO Overvaluation Underpricing first-day return price setting |
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Underpricing refers to the phenomenon of abnormal first-day returns from initial public offerings (IPOs). Without doubt, any US investor would agree that one day-returns of 11.4% on average are exceptional and a worthwhile investment. Since then many studies have proven that it is a persistent phenomenon and also occurs on markets all over the world.
The most puzzling question for scientists is why companies are leaving this money on the table and do not set an offering price that reflects the market demand at the offering date.
The main focus of this paper is whether and how the findings of past research, primarily conducted for the US market, apply to the German IPO market. As a result, both investors and issuers shall receive practical implications for their decision-making within the IPO process.
This study comprises a brief description of some important theoretical aspects that shape the price setting of an IPO. It focuses on business valuation as it is the basis for setting the price of an IPO. Furthermore, the most common price setting mechanisms are explained. Past research results and theories with regard to IPO underpricing will be outlined and put into relation to the upcoming analysis. This also includes the long-run performance of IPOs and deals especially with the question of whether IPOs are systematically overvalued by investors and, if so, why. The empirical analysis consists of a deduction of influencing variables and an applying theoretical model. Finally, OLS results will be presented and interpreted, which also includes practical implications for both, issuers and investors.
Justyna Dietrich, M.Sc., was born in 1984 in Jaslo (Poland). After finishing school in Germany, she decided to study Business Administration (B.A.) at the Berlin School of Economics and Law, majoring in Finance & Accounting in 2009. These studies allowed the author to deepen her knowledge in financial markets resulting in the successful graduation in International Finance (M.Sc.) in 2010, also at the Berlin School of Economics and Law. While still studying, she also gained several years of practical experience in the IT sector. After graduation, she commenced her work in a business consulting company specializing in the financial industry. With a keen interest in Behavioral Finance and Strategy, the author decided to reflect IPO underpricing respectively from these two points of view.
The most puzzling question for scientists is why companies are leaving this money on the table and do not set an offering price that reflects the market demand at the offering date.
The main focus of this paper is whether and how the findings of past research, primarily conducted for the US market, apply to the German IPO market. As a result, both investors and issuers shall receive practical implications for their decision-making within the IPO process.
This study comprises a brief description of some important theoretical aspects that shape the price setting of an IPO. It focuses on business valuation as it is the basis for setting the price of an IPO. Furthermore, the most common price setting mechanisms are explained. Past research results and theories with regard to IPO underpricing will be outlined and put into relation to the upcoming analysis. This also includes the long-run performance of IPOs and deals especially with the question of whether IPOs are systematically overvalued by investors and, if so, why. The empirical analysis consists of a deduction of influencing variables and an applying theoretical model. Finally, OLS results will be presented and interpreted, which also includes practical implications for both, issuers and investors.
Justyna Dietrich, M.Sc., was born in 1984 in Jaslo (Poland). After finishing school in Germany, she decided to study Business Administration (B.A.) at the Berlin School of Economics and Law, majoring in Finance & Accounting in 2009. These studies allowed the author to deepen her knowledge in financial markets resulting in the successful graduation in International Finance (M.Sc.) in 2010, also at the Berlin School of Economics and Law. While still studying, she also gained several years of practical experience in the IT sector. After graduation, she commenced her work in a business consulting company specializing in the financial industry. With a keen interest in Behavioral Finance and Strategy, the author decided to reflect IPO underpricing respectively from these two points of view.
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