The Underpricing of Venture and Nonventure Capital Ipos: An Empirical Investigation

Posted: 18 Oct 2001

See all articles by Bill B. Francis

Bill B. Francis

University of South Florida - College of Business Administration

Iftekar Hassen

New Jersey Institute of Technology

Abstract

In this paper, we examine the premarket underpricing phenomenon within a group of venture-backed and a group of non-venture-backed initial public offerings (IPOs), using a stochastic frontier approach. Consistent with previous research, we find that venture-backed IPOs are managed by more reputable underwriters and generally are associated with less underwriter compensation. However, unlike other papers in the literature, we find that the initial-day returns of venture-backed IPOs on average, are, higher than the non-venture-backed group. We observe a significantly higher degree of premarket pricing inefficiency in the initial offer price of venture-backed IPOs. Further, our results show that a significant portion of the initial day returns is due to deliberate underpricing in the premarket.

Keywords: IPOs, deliberate underpricing, venture-backed IPOs, stochastic frontier

Suggested Citation

Francis, Bill B. and Hassen, Iftekar, The Underpricing of Venture and Nonventure Capital Ipos: An Empirical Investigation. Available at SSRN: https://ssrn.com/abstract=280651

Bill B. Francis

University of South Florida - College of Business Administration ( email )

4202 E. Fowler Avenue, BSN 3403
Dept. of Finance
Tampa, FL 33620-5500
United States
813-974-6300 (Phone)
813-974-3030 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/finance/facult

Iftekar Hassen (Contact Author)

New Jersey Institute of Technology ( email )

University Heights
Newark, NJ 07102

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