Issuer IPO underpricing and Directed Share Program (DSP)

Beng Soon Chong, Zhenbin Liu*

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-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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