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What is Understanding IPO Underpricing Dynamics about?

1. Companies going public often leave substantial money on the table by underpricing their IPOs, allowing first-day trading prices to rise above the offer price. However, issuers are rarely upset about this, even when it represents billions in total funds left on the table across many IPOs. 2. Prospect theory suggests issuers focus on changes in wealth rather than absolute levels. For most IPOs, the large gain in share price outweighs the dilution from underpricing, resulting in a net gain for pre-IPO sha

Author

Antonio Vinicius Pimpão Gomes

Language

EN