Issuer IPO underpricing and Directed Share Program (DSP)

Beng Soon Chong; Zhenbin LIU

doi:10.1016/j.jempfin.2020.01.003

Issuer IPO underpricing and Directed Share Program (DSP)

Beng Soon Chong, Zhenbin LIU^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

The issuer underpricing hypothesis addresses why IPOs with a Directed Share Program (DSP) are substantially more underpriced and why the issuers are not upset over the additional money left on the table. In support of the hypothesis, we find that both the final size and likelihood of DSP adoption are greater when expected IPO underpricing is high. Issuers with a DSP also strategically underprice their IPO through a downward bias in offer price adjustments, but will do so only when the cost is not prohibitive. Finally, the first-day IPO return is relatively higher when directed shares are allocated to customers.

Original language	English
Pages (from-to)	105-125
Number of pages	21
Journal	Journal of Empirical Finance
Volume	56
DOIs	https://doi.org/10.1016/j.jempfin.2020.01.003
Publication status	Published - Mar 2020

Scopus Subject Areas

Finance
Economics and Econometrics

User-Defined Keywords

Directed share program
Initial public offerings
IPO underpricing
Lockup
Partial adjustment phenomenon
Prospect theory

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10.1016/j.jempfin.2020.01.003

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title = "Issuer IPO underpricing and Directed Share Program (DSP)",

abstract = "The issuer underpricing hypothesis addresses why IPOs with a Directed Share Program (DSP) are substantially more underpriced and why the issuers are not upset over the additional money left on the table. In support of the hypothesis, we find that both the final size and likelihood of DSP adoption are greater when expected IPO underpricing is high. Issuers with a DSP also strategically underprice their IPO through a downward bias in offer price adjustments, but will do so only when the cost is not prohibitive. Finally, the first-day IPO return is relatively higher when directed shares are allocated to customers.",

keywords = "Directed share program, Initial public offerings, IPO underpricing, Lockup, Partial adjustment phenomenon, Prospect theory",

author = "Chong, {Beng Soon} and Zhenbin LIU",

year = "2020",

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doi = "10.1016/j.jempfin.2020.01.003",

language = "English",

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journal = "Journal of Empirical Finance",

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AU - LIU, Zhenbin

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AB - The issuer underpricing hypothesis addresses why IPOs with a Directed Share Program (DSP) are substantially more underpriced and why the issuers are not upset over the additional money left on the table. In support of the hypothesis, we find that both the final size and likelihood of DSP adoption are greater when expected IPO underpricing is high. Issuers with a DSP also strategically underprice their IPO through a downward bias in offer price adjustments, but will do so only when the cost is not prohibitive. Finally, the first-day IPO return is relatively higher when directed shares are allocated to customers.

KW - Directed share program

KW - Initial public offerings

KW - IPO underpricing

KW - Lockup

KW - Partial adjustment phenomenon

KW - Prospect theory

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VL - 56

SP - 105

EP - 125

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

ER -

Issuer IPO underpricing and Directed Share Program (DSP)

Abstract

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User-Defined Keywords

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