A Review of IPO Activity, Pricing, and Allocations


  • Jay R. Ritter,

  • Ivo Welch

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    • Ritter is from the Warrington College of Business Administration at the University of Florida; Welch is from the Yale School of Management and the NBER. This survey was presented at the 2002 Atlanta AFA meetings. We thank Chris James, Roni Michaely, Ann Sherman, Donghang Zhang, and especially Tim Loughran and Maureen O'Hara for comments, and Kenneth French for supplying factor returns. The authors maintain a more extensive bibliography of IPO-related work at http://www.iporesources.org. This web site contains links to many IPO-related sites and some reasonably up-to-date information on aggregate IPO activity and IPO working papers.


We review the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, and how IPOs perform in the long run. Our perspective is threefold: First, we believe that many IPO phenomena are not stationary. Second, we believe research into share allocation issues is the most promising area of research in IPOs at the moment. Third, we argue that asymmetric information is not the primary driver of many IPO phenomena. Instead, we believe future progress in the literature will come from nonrational and agency conflict explanations. We describe some promising such alternatives.