Review of Theoretical Explanations of IPO Underpricing
Fouad Jamaani and
Additional contact information
Fouad Jamaani: School of Economics, Finance, and Marketing, College of Business, RMIT University, Melbourne, VIC. 3000, Australia
Manal Alidarous: Department of Accounting, College of Business Administration, Taif University, Saudi Arabia
Journal of Accounting, Business and Finance Research, 2019, vol. 6, issue 1, 1-18
Motivated by a lack of availability of theoretical review of Initial Public Offerings (IPO) underpricing, this paper recognized a lack of presentation of theoretical explanations of the phenomenon of IPO underpricing in the literature. This makes scholars and investors interested in IPO underpricing research to face difficulty when it comes to the decision to employ IPO underpricing models. Hence, this paper provides a concise but comparatively adequate review of competing IPO underpricing theories. This review covered 13 theoretical models based on information asymmetry, institutional explanations, ownership and control reasons, and behavioral explanations to elucidate the phenomenon of IPO underpricing. Based on this review, the authors found that the underpricing phenomenon is eventually elucidated by the existence of information asymmetry amongst key IPO parties including the issuing firm, the underwriter, and the investor. Across the 13 reviewed IPO underpricing theories, the Entrepreneurial Wealth Losses (EWL) theory emerges as a compelling asymmetric information model. This is because it solves the problem of information asymmetry between the issuer and investor while accounting for the endogenous relationship between underwriter reputation and IPO underpricing.
Keywords: Initial public offering; Underpricing; Underwriter reputation; Endogeneity And theories. (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spi:joabfr:2019:p:1-18
Access Statistics for this article
Journal of Accounting, Business and Finance Research is currently edited by Managing editor
More articles in Journal of Accounting, Business and Finance Research from Scientific Publishing Institute Executive Suite Z - 5 Building Z Business Bay, DXB, United Arab Emirates.
Bibliographic data for series maintained by Marina Taylor ().