Abstract
In this paper, we examine the premarket underpricing phenomenon within a group of venture-backed and a group of non-venture-backed initial public offerings (IPOs), using a stochastic frontier approach. Consistent with previous research, we find that venture-backed IPOs are managed by more reputable underwriters and generally are associated with less underwriter compensation. However, unlike other papers in the literature, we find that the initial-day returns of venture-backed IPOs on average, are, higher than the non-venture-backed group. We observe a significantly higher degree of premarket pricing inefficiency in the initial offer price of venture-backed IPOs. Further, our results show that a significant portion of the initial day returns is due to deliberate underpricing in the premarket.
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Francis, B.B., Hasan, I. The Underpricing of Venture and Nonventure Capital IPOs: An Empirical Investigation. Journal of Financial Services Research 19, 99–113 (2001). https://doi.org/10.1023/A:1011134715911
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DOI: https://doi.org/10.1023/A:1011134715911