15 - Reassessing canadian IPO underpricing: Evidence from common share, Capital Pool Company, and unit offerings

Abstract

This chapter examines common shares Canadian initial public offerings (IPOs), unit, and junior stock IPOs for the period 1991 to 1998. This study shows that the IPO market in Canada is good only for large offerings, and that the underpricing is huge for Capital Pool Company (CPC) IPOs. It is also found that unit IPOs are more underpriced than common share IPOs. Further, oil and gas, real estate, and technology IPOs are more underpriced than IPOs from other sectors. It is also found that the underpricing is related to the prestige of the underwriter and to the period of the issue. A number of possible explanations for the high initial return of Canadian issuing firms are entertained. It is found that underpricing is significantly related to the prestige of the underwriter, to the period of the issue, and to whether or not the IPO is a CPC.