Abstract
A major reason that issuers accept IPO underpricing is that they use options and stock grants to protect themselves from dilution to their existing shares. IPO underpricing decreases taxes paid by employees with options or can be used as currency to strengthen strategic alliances and customer loyalty. Option use is directly related to IPO underpricing and explains a substantial amount of its variation, but probably does not drive underpricing. Venture capital backing increases underpricing and options use. Nonfounder CEOs benefit more from the tax benefit than they lose in dilution, while founder CEOs are less likely to come out ahead.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.