Abstract
An examination of the pricing of new issues of equity in several regions of the world reveals significantly more underpricing of initial public offerings of privatizations (PIPOs) than private-sector initial public offerings (IPOs). This finding is consistent with a model of new issue pricing developed by the author in which managers (including bureaucrats) underprice shares in order to create additional consumer surplus for the benefit of shareholders. Managers then try to capture this contrived surplus in pecuniary and non-pecuniary terms. The non-pecuniary benefits of underpricing are termed influence, and influence-seeking is hypothesized to explain the greater underpricing of PIPOs than IPOs. This paper presents a test of the author's influence-seeking theory of new issue pricing using data on PIPOs and IPOs on the Nigerian Stock Exchange between January 1989 and June 1993. Considerable support for the new model of share pricing is found in the Nigerian equity market.
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