Skip Navigation


RFS Advance Access originally published online on January 20, 2006
Review of Financial Studies 2006 19(2):381-421; doi:10.1093/rfs/hhj018
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
19/2/381    most recent
hhj018v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (2)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Ellul, A.
Right arrow Articles by Pagano, M.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

IPO Underpricing and After-Market Liquidity

Andrew Ellul
Indiana University

Marco Pagano
Università di Napoli Federico II, CSEF and CEPR

Address correspondence to Marco Pagano, Department of Economics, Università di Napoli Federico II, Via Cintia, 80126 Napoli, Italy, or email: mrpagano{at}tin.it.

The underpricing of initial public offerings (IPOs) is generally explained with asymmetric information and risk. We complement these traditional explanations with a new theory where investors worry also about the after-market illiquidity that may result from asymmetric information after the IPO. The less liquid the aftermarket is expected to be, and the less predictable its liquidity, the larger will be the IPO underpricing. Our model blends such liquidity concerns with adverse selection and risk as motives for underpricing. The model’s predictions are supported by evidence for 337 British IPOs effected between 1998 and 2000. Using various measures of liquidity, we find that expected after-market liquidity and liquidity risk are important determinants of IPO underpricing.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
N. Cai, J. Helwege, and A. Warga
Underpricing in the Corporate Bond Market
Rev. Financ. Stud., November 1, 2007; 20(6): 2021 - 2046.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
A. Bodnaruk, E. Kandel, M. Massa, and A. Simonov
Shareholder Diversification and the Decision to Go Public
Rev. Financ. Stud., August 30, 2007; (2007) hhm036v1.
[Abstract] [Full Text] [PDF]


Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.