Question

1. Why Has IPO Underpricing Increased Over Time?

b. Is this good or bad?

c. Where has research yet to go in studying this topic?

Answer 1

1. Initial public offering under pricing have increased over the time because there has been a very high liquidity in the market and investors are highly willing to purchase the shares of the company so shares are not being available to them easily as there is a high amount of oversubscription and this is leading to a higher grey market premium for these initial public offer because investors are willing to purchase this shares from grey market at a premium and this will be leading to higher initial public offering underpricing and it can also attributed to the desire of the management in order to issue their shares in the market at a discount so there is a room for subscription for the investors as well.

2. This is good for the new share holders of the company because they are gaining upon their investment at the time, they are becoming the shareholders of the new company but it can be bad for all those shareholders who are exiting the mistakes in the company because they are selling their shares at a lower price and it would also be leading to gains for underwriters

3. Research about initial public offering underwriting is mostly related to understanding of the investors behaviour and the company's issuance of shares at the prices as well as the underwriting approach so the valuation can never be completely accurate for these companies in the initial public offering market because it can lead to to issue of the shares mostly on the sentiments.