Effect of Primary Market Factors on IPO Initial Return : Financial Variables Integrated Analysis

Abstract

We examine the non-financial factors of the primary market that affect the price disparity and find significant impact on IPO initial return. Using IPO firms in Korea, we investigate non-financial variables which are not company-characterized statements affecting the IPO rate of return and the underpricing of the IPOs along with financial information. As a result, we find that there exist consistent relationships between non-financial factors regarding attractiveness and guarantee such as competition rate, lockup ratio, distributable rate, price unspecified rate and IPO price uncertainty. In addition, the price movement of the IPO market reacts to the movement of primary market characteristics with specific pattern. Our results show that non-financial information in the primary market has a relatively significant on initial return of the IPO. The results also support the view of a link between non-financial variables of the primary market and price disparity.