DETERMINANTS OF IPO UNDERPRICING: EVIDENCE FROM TUNISIA

Sarra Ben Slama Zouari, Abdelkader Boudriga and Neila Boulila Taktak

The International Journal of Business and Finance Research, 2011, vol. 5, issue 1, 13-32

Abstract: This paper empirically analyzes the short run performance of Tunisian initial public offerings (IPO). It sheds light on the determinants of IPO’s in a context of a frontier market characterized by high information asymmetry, low information efficiency, thin trading and the presence of noise traders. Using a sample of 34 Tunisian IPO’s from the period 1992-2008, we find an average market adjusted initial return for the first three trading days of about 17.8 percent. The factors significantly related to the underpricing are retained capital, underwriter’s price support, oversubscription, listing delay and the offer price. Age of the firm, its size and the size of the offer do not seem to reduce the amount of money left on the table by issuers. It appears also that underpricing is driven by irrational investors (ipoers) seeking for short-run capital gains. These results remain unchanged after controlling for the presence of institutional investors, price discount and the existence of liquidity contract. Overall, the results show that investors rely mainly on side information to value IPOs.

Keywords: Initial public offerings; Short-run underpricing; Underwriter’s price support. (search for similar items in EconPapers)
JEL-codes: G14 G3 (search for similar items in EconPapers)
Date: 2011
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