Abstract
This paper aims to analyse the integral factors for IPO under-pricing. There have been a number of studies and the researchers have found out various factors behind under-pricing of IPOs. We list down the factors which affect IPO under-pricing such as information asymmetry, signalling, and underwriter reputation. The very first paper on under-pricing by Rock (1986) very well explains the concept of information asymmetry as the cause of under-pricing. Allen and Faulhaber (1989) explain that the firms use under-pricing as a mechanism of signalling for future prospects. Under-pricing is a well-documented phenomenon which exists since long and is still present in the IPO market.
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