Business, Management and Accounting
5 years ago

Underpricing IPOs harms long-term relationships between issuers and underwriters.

IPO underpricing and the (long-term) relationship between issuers, investors and underwriters
G. Kaasjager

Paper Summary

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The study looked at Initial Public Offerings (IPOs) in the US from 2000-2018 and found that underpricing of 6.47% is common. This underpricing can affect the relationship between companies going public and the banks helping them. If underpricing is too high, it can hurt the chances of the bank being hired again for future offerings. The study also found that in years with a lot of IPOs, banks are less likely to be rehired. Overall, the research shows that if banks underprice IPOs too much, it can harm their long-term relationship with the companies they work with.