Abstract
We review the theory and evidence on IPO activity and underpricing focusing on the Warsaw Stock Exchange. Although the topic has been under investigation in the past, we believe that the recent decade of low interest rates deserves inquiry. We research the extent of underpricing during this period and further conclude that three factors had a statistically significant influence on initial public offering underpricing during this period: the year of IPO, risk-free rate and WIG close value.
Highlights
Companies that sell shares on the stock exchange for the first time (Initial Public Offering) advertise and offer incentives to new shareholders
We investigate underpricing in IPOs on the Warsaw Stock Exchange (WSE) between 2005 and 2016
Average underpricing of the 349 companies which debuted on the Warsaw Stock Exchange from 2005 to 2016 was 12.35%
Summary
Companies that sell shares on the stock exchange for the first time (Initial Public Offering) advertise and offer incentives to new shareholders. Shares are usually offered at a price which is lower than that resulting from valuations. The size of the incentives and pre‐IPO valuations are confidential and as such difficult to research. An indicator of Initial Return (IR) is calculated based on the price at the end of the first day of trading and the price at which shares were sold to new investors. Ritter further indicates that underpricing depends upon the size of the company issuing shares and prior financing sources. Initial return decreases with the size of the company (measured in revenues). Underpricing is higher for venture capital backed companies than it is for growth and buy‐out funds financed companies
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