Issuer IPO underpricing and Directed Share Program (DSP)

Beng Soon Chong, Zhenbin LIU*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)


    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 languageEnglish
    Pages (from-to)105-125
    Number of pages21
    JournalJournal of Empirical Finance
    Publication statusPublished - 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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