IPO Pricing in the Dot-com Bubble


  • Alexander Ljungqvist,

  • William J. Wilhelm Jr.

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    • Ljungqvist is from the New York University Stern School of Business and the Centre for Economic Policy Research, London, and Wilhelm is from the Oxford University Said Business School and the University of Virginia McIntire School of Commerce. We are grateful to Yakov Amihud, Susan Chaplinsky, Julian Franks, Edie Hotchkiss, Michelle Lowry, Jan Mahrt-Smith, Eli Ofek, N. R. Prabhala, Matthew Richardson, Jay Ritter, Daniel Wolfenzon, an anonymous referee, and especially Rick Green (the editor) for helpful comments. The paper has benefited from presentations at the WFA 2002 meetings, the University of Florida, George-town University, INSEAD, London Business School, New York University (Berkley Center), Oxford University, and the University of Virginia. All errors are our own.


IPO underpricing reached astronomical levels during 1999 and 2000. We show that the regime shift in initial returns and other elements of pricing behavior can be at least partially accounted for by marked changes in pre-IPO ownership structure and insider selling behavior over the period, which reduced key decision makers' incentives to control underpricing. After controlling for these changes, the difference in underpricing between 1999 and 2000 and the preceding three years is much reduced. Our results suggest that it was firm characteristics that were unique during the “dot-com bubble” and that pricing behavior followed from incentives created by these characteristics.