Offer Price and Post-IPO Ownership Structure

Abstract

In an initial public offering (IPO) the firm can set the offer price of its shares, based on the valuation of the firm, by changing the number of shares. This study uses stock ownership records and hand-collected IPO data to analyze the offer prices, the underpricing of IPO shares (measured as the initial return, IR) and the relationship with the post-IPO ownership structure. Specifically, the paper focuses on individual IPO investors. The results show that for the lowest priced IPOs the IR is significantly higher priced IPOs. Furthermore, for the low-priced IPOs, there is a negative relationship between offer price and breadth of ownership. This implies that stocks with a low price can attract more investors than stocks with higher offer prices. However, for high-priced IPOs the relationship is positive, suggesting that also the IPOs with highest price attract more investors. Overall, this study shows that the offer price of an IPO firm may have a moderate effect on its post-IPO ownership structure.