Skip to main content

Partial Adjustment to Public Information and IPO Underpricing

  • Daniel J. Bradley (a1) and Bradford D. Jordan (a2)

We examine the extent to which offer prices reflect public information for 3,325 IPOs over the period 1990–1999. We focus primarily on four variables: share overhang, file range amendments, venture capital backing, and previous issue underpricing. We show that 35%–50% of the variation in IPO underpricing can be predicted using public information known before the offer date and therefore conclude that IPO offer prices underadjust to widely available public information to a much greater extent than previously documented.

Hide All
Barry, C.Initial Public Offering Underpricing: The Issuer's View-A Comment.” Journal of Finance, 54 (1989), 10991103.
Barry, C.; Muscarella, C.; Peavy, J. III; and Vetsuypens, M.. “The Role of Venture Capital in the Creation of Public Companies.” Journal of Financial Economics, 27 (1990), 447471.
Beatty, R., and Welch, I.. “Issuer Expenses and Legal Liability in Initial Public Offerings.” Journal of Law and Economics, 39 (1996), 545603.
Benveniste, L., and Spindt, P.. “How Investment Bankers Determine the Offer Price and Allocation of New Issues.” Journal of Financial Economics, 24 (1989), 343361.
Bradley, D.; Jordan, B.; Roten, I.; and Yi, H.. “Venture Capital and IPO Lockup Expiration: An Empirical Analysis.” Journal of Financial Research, 24 (2001), 465493.
Brav, A., and Gompers, P.. “The Role of Lock-ups in Initial Public Offerings.” Review of Financial Studies (forthcoming 2002).
Carter, R.; Dark, F.; and Singh, A.. “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks.” Journal of Finance, 53 (1998), 285311.
Field, L., and Hanka, G.. “The Expiration of IPO Share Lockups.” Journal of Finance, 56 (2001), 471500.
Habib, M., and Ljungqvist, A.. “Underpricing and Entrepreneurial Wealth Losses in IPOs: Theory and Evidence.” Review of Financial Studies, 14 (2001), 433458.
Hamao, Y.; Packer, F.; and Ritter, J.. “Institutional Affiliation and the Role of Venture Capital: Evidence from Initial Public Offerings in Japan.” Pacific-Basin Finance Journal, 8 (2000), 529558.
Hanley, K.The Underwriting of Initial Public Offerings and the Partial Adjustment Phenomenon.” Journal of Financial Economics, 34 (1993), 231250.
Ibbotson, R., and Jaffe, J.. “‘Hot Issue’ Markets.” Journal of Finance, 30 (1975), 10271042.
Jegadeesh, N.; Weinstein, M.; and Welch, I.. “An Empirical Investigation of IPO Returns and Subsequent Equity Offerings.” Journal of Financial Economics, 34 (1993), 153175.
Loughran, T., and Ritter, J.. “Why Don't Issuers Get Upset about Leaving Money on the Table in IPOs?Review of Financial Studies, 15 (2002), 413443.
Lowry, M., and Schwert, W.. “IPO Market Cycles: Bubbles or Sequential Learning?Journal of Finance, 57 (2002), 11711200.
Mayers, D.Why Firms Issue Convertible Bonds: The Matching of Financial and Real Investment Options.” Journal of Financial Economics, 47 (1998), 83102.
Megginson, W., and Weiss, K.. “Venture Capitalist Certification in Initial Public Offerings.” Journal of Finance, 46 (1991), 2948.
Ritter, J.The Hot Issue Market of 1980.” Journal of Business, 57 (1984), 215239.
Ritter, J. “Investment Banking and Securities Issuance.” In Handbook of Economics of Finance, Constantinides, G., Harris, M., and Stulz, R., eds. Amsterdam, Netherlands: North-Holland (forthcoming 2002).
Rock, K.Why New Issues are Underpriced.” Journal of Financial Economics, 15 (1986), 187212.
Sahlman, W.Aspects of Financial Contracting in Venture Capital. Journal of Applied Corporate Finance, 1 (1988), 2336.
Schultz, P.Unit Initial Public Offerings.” Journal of Financial Economics, 34 (1993), 199229.
Smart, S., and Zutter, C.. “Control as a Motivation for Underpricing: A Comparison of Dual- and Single-Class IPOs.” Journal of Financial Economics (forthcoming 2002).
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed