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- Title
Do Underwriters Price Up IPOs to Prevent Withdrawal?
- Authors
Busaba, Walid Y.; Liu, Zheng; Restrepo, Felipe
- Abstract
We examine whether underwriters price up weakly demanded initial public offerings (IPOs) to prevent withdrawal. Our empirical strategy exploits a discontinuity in the distribution of IPO prices around the low boundary of the filing range. Offerings with a high ex ante withdrawal probability that are priced at this boundary are likely priced up to meet issuers' reservation prices. We compare the aftermarket returns of these IPOs to the returns of other weakly demanded offerings where issuers' reservation prices were likely not binding, and we identify a negative 8.4-percentage-point differential attributable to the aggressive pricing inherent in setting the price at the low boundary when withdrawal risk is high.
- Subjects
GOING public (Securities); INSURANCE underwriters; RISK (Insurance); SECURITIES; STOCKS (Finance); TRACKING stock
- Publication
Journal of Financial & Quantitative Analysis, 2020, Vol 55, Issue 6, p2005
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109019000553