Abstract
The aim of this paper is to offer a comprehensive review of Initial Public Offering literature on the pricing and interactions that occur in the IPO primary market. Among the multitude of variables that might affect the way shares are priced and sold in new offerings, the role of previous relationships between issuing firms, investment banks, and institutional investors, i.e. key participants in the listing process, is the object of analysis in the present paper. Existing mixed evidence suggests that repeated interactions among the major players could influence the IPO results in two ways: either by reducing asymmetric information problems or by determining opportunistic behaviours which can be seen in well-known secondary market price anomalies. The originality of the paper lies in the fact that it is the first to provide a review of literature on IPO primary market dynamics, thereby highlighting the way in which relationships between key parties of an IPO shape the entire pricing process. Moreover, this study points out the importance of shifting attention to this market in order to better understand IPO pricing dynamics.
Highlights
When a firm is listed on the markets for the first time, an Initial Public Offering (IPO) should be issued at an offer price that is deemed suitable for the firm’s shares
Advocates of financial market efficiency find the empirical evidence on IPO pricing mechanisms to be something of a conundrum
The main difficulty associated with an initial public offering is to assess the value of the issuing firm and, subsequently, set an commensurate offer price
Summary
When a firm is listed on the markets for the first time, an Initial Public Offering (IPO) should be issued at an offer price that is deemed suitable for the firm’s shares. All players involved in the IPO (i.e., investment banks, firms, institutional investors, venture capitalists and analysts, lawyers, accountants, and government regulators) play an important role in pricing new securities, the firm, the lead underwriter and its syndicate, and institutional investors are the most prominent; their role is greater in establishing the offering price and in shaping early market performance (Pollock, 2004). These players may be driven by different and not necessarily compatible motivations.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: 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.
