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Ipo Underpricing: The Owner’S Perspective, Steven Dolvin
Ipo Underpricing: The Owner’S Perspective, Steven Dolvin
Steven D. Dolvin
Most corporate finance textbooks include a chapter on raising capital, giving particular attention to initial public offerings (IPOs). For IPOs, underpricing is defined as the percentage change from the offer price to the closing price on the first trading day. Textbooks universally treat underpricing as the indirect cost of issuance; however, this fails to account for the share issuance decision. Because owners do not typically sell all (or even most) of their shares, underpricing overstates the wealth lost by preexisting owners. I provide simple, real-life examples for instructors to use in courses such as corporate finance, entrepreneurship, or alternative investments.
Can Venture Capitalists Tame The Wolves? An Analysis Of Fraudulent Underwriters, Ipo Characteristics, And Vc Certification, Steven Dolvin
Can Venture Capitalists Tame The Wolves? An Analysis Of Fraudulent Underwriters, Ipo Characteristics, And Vc Certification, Steven Dolvin
Steven D. Dolvin
A recent hit movie, The Wolf of Wall Street, highlighted the fraudulent activity of the investment bank Stratton Oakmont. Unfortunately, this was not the only such financial firm convicted of illegal behavior during the 1990s; there were at least 34 Initial Public Offering (IPO) underwriters that were the subject of SEC enforcement during this period. I examine the characteristics of IPOs underwritten by these investment banks, particularly as they compare to other IPOs. I find that IPOs underwritten by sanctioned investment banks (particularly those that were less active in the IPO market) were significantly different with respect to both firm …
Underpricing, Overhang, And The Cost Of Going Public To Preexisting Shareholders, Steven Dolvin, Bradford Jordan
Underpricing, Overhang, And The Cost Of Going Public To Preexisting Shareholders, Steven Dolvin, Bradford Jordan
Steven D. Dolvin
IPO underpricing has been extensively studied; however, its impact on the wealth of preexisting shareholders has not been closely examined. We address the question of whether or not periods of high underpricing adversely affect preexisting shareholders. We find that high levels of underpricing are associated with increased share retention, which effectively offsets much of the potential cost. Overall, we find that the percentage of shareholder wealth lost is surprisingly stable over time, unlike underpricing itself. We also find that many factors known to be related to underpricing are not significant determinants of the cost of going public to preexisting owners.