The Analysis of Factors Affecting IPO Premium

Zitian Ye ()
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Zitian Ye: Shinyway Education

A chapter in Proceedings of the 2025 International Conference on Financial Innovation and Marketing Management (FIMM 2025), 2025, pp 149-158 from Springer

Abstract: Abstract The study of initial public offering (IPO) pricing and premium is of significant importance, as improper pricing may lead to insufficient financing for companies or the formation of market bubbles, adversely affecting economic stability. This paper examines the impact of internal company factors, such as financial performance and corporate governance, as well as external market environment factors, including investor sentiment and macroeconomic conditions, on IPO pricing. Additionally, it explores the role of information asymmetry theory in explaining IPO premiums, highlighting how unequal information distribution between issuers and investors can lead to mispricing. The study provides a detailed analysis of the factors influencing IPO premiums and compares two common pricing methods: the discounted cash flow (DCF) model and the fixed price method, discussing their respective advantages and limitations. Furthermore, a multiple linear regression model is constructed using standardized data to assess the impact of eight key independent variables, such as issue price, first-day trading volume, and market volatility, on the first-day premium rate. The findings suggest that regulatory authorities should mandate the disclosure of institutional quotation distributions and enhance oversight to mitigate information asymmetry. Meanwhile, companies should adopt rational valuation practices based on industry benchmarks and improve transparency by disclosing project progress to foster market trust and ensure a fair pricing process.

Keywords: IPO pricing; IPO premium; information asymmetry; DCF valuation; fixed price method (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-874-5_19

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DOI: 10.2991/978-94-6463-874-5_19

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