Penny Stock IPOs

Daniel J. Bradley, John W. Cooney, Jr., Steven D. Dolvin and Bradford Jordan

Financial Management, 2006, vol. 35, issue 1

Abstract: We examine underpricing, long-run returns, lockup periods, and gross spreads for penny stock IPOs over the 1990-1998 period. We find that penny stock IPOs have higher initial returns than ordinary IPOs, but significantly worse long-run underperformance. We also find that penny stock IPOs have longer lockup periods and larger gross spreads. To explore the effect of potential market manipulation, we examine IPOs led by a group of underwriters that were the subject of SEC enforcement actions and/or other penalties. Penny stock issues led by these banks are particularly underpriced and underperform ordinary IPOs led by other underwriters.

Date: 2006
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