M. J. Neeley School of Business, Texas Christian University. The author is grateful to Michael Vetsuypens, Stan Block, Chris Muscarella, Marcia Millon, and especially Jay Ritter and an anonymous referee for helpful comments and suggestions. The M. J. Neeley School of Business at Texas Christian University provided financial support. Any remaining errors are the responsibility of the author.
Initial Public Offering Underpricing: The Issuer's View—A Comment
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 4, pages 1099–1103, September 1989
How to Cite
BARRY, C. B. (1989), Initial Public Offering Underpricing: The Issuer's View—A Comment. The Journal of Finance, 44: 1099–1103. doi: 10.1111/j.1540-6261.1989.tb02642.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
I consider the underpricing of initial public offerings (IPOs) and the wealth transfers implicit in that underpricing. I find that initial returns properly measure the “issue cost” effect of underpricing as a fraction of offer size, as in Ritter (1987). I present a measure of the wealth effect of underpricing per share retained. In general, the wealth effects on existing shareholders depend on the extent to which they participate in the offering. From the perspective of issuer's wealth, I find that Dawson's (1987) measure is appropriate only in the special case in which all of the prior owners' shares are sold in the IPO.