Offer Price, Target Ownership Structure and IPO Performance

Chitru S. Fernando, Srinivasan Krishnamurthy and Paul A. Spindt

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: Although the choice of an IPO offer price level would seem to have little economic significance, firms do not decide this arbitrarily. Our findings suggest that firms select their IPO offer prices to target a desired ownership structure, which in turn has implications for underpricing and post-IPO performance. Higher priced IPOs are marketed by more reputed underwriters and attract a relatively larger institutional investment. These IPOs are relatively more underpriced, possibly as compensation for the monitoring and information benefits provided by institutional investors. IPOs whose offer prices are below the median level seem to be targeted towards a retail investor clientele. These IPOs are also relatively more underpriced, possibly as a cost of adverse selection. Our finding that long-run performance increases with offer price confirms that higher priced IPOs are better firms.

Keywords: Initial public offerings; share prices; share allocation (search for similar items in EconPapers)
JEL-codes: G12 G14 G24 G32 (search for similar items in EconPapers)
Date: 1999-08
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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