Skewness Preference and IPO Underpricing: International Evidence

Abstract

This paper examines the impact of expected skewness on IPO underpricing based on a comprehensive set of 17,051 IPOs from 23 countries between 1990 and 2013. We find that IPOs with high expected skewness have significantly higher first-day return around the world, confirming the previous results based on U.S. IPOs. Such preference for skewness is more pronounced in countries with relatively higher gambling propensity, a larger number of non-religious population, a more individualistic culture, and a higher newspaper circulation. Moreover, IPOs with high expected skewness significantly underperform those with low expected skewness over a longer horizon, which is exacerbated under a stronger gambling tendency and individualism. Our results provide additional empirical support for skewness preference and pricing of lottery type assets in an international setting.