Business, Management and Accounting
4 years ago

Investment banks' IPO pricing strategy impacts market share in new markets.

Management Science
Investment Banks' Entry into New IPO Markets and IPO Underpricing
Simon Fung, Ferdinand A. Gul, Suresh Radhakrishnan

Paper Summary

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Investment banks that underprice initial public offerings (IPOs) for Chinese companies in Hong Kong gain more market share in the long run. By offering higher prices to attract business, banks end up with less underpricing and more success in the IPO market. This pattern is especially strong for banks that handle the first IPO deals for Chinese companies. This shows that starting with lower underpricing helps banks grow their market share over time, likely due to the experience gained from early deals.