Short-run underpncing of initial public offerings (IPOs): a conceptual review

Abstract

The academic literature on Initial Public Offerings (IPO) performance has grown quite rapidly over the last decade, due to its puzzling phenomena of underpricing. The current study aims at conducting a non-systematic review of literature on the theories and empirical evidences of Initial Public Offering (IPO) underpricing in order to understand its meaning and dimensions. In this regard, a thorough review of existing literature has done and it is found that the IPO short-run underpricing is associated almost with every financial market of the world. However, the magnitude of underpricing varies from one country to another, depends on the institutional structure, binding regulations, contractual mechanisms and the characteristics of the firms going public. Various theories and propositions have been developed by the researchers to explain the phenomena of underpricing which needs to be tested empirically at country-specific environment such as quality of legal framework, macro-economic factors and socio-political system.