A Review of IPO Activity, Pricing, and Allocations

We review the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, and how IPOs perform in the long run. Our perspective is threefold: First, we believe that many IPO phenomena are not stationary. Second, we believe research in...

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Bibliographic Details
Published in:The Journal of finance (New York) 2002-08, Vol.57 (4), p.1795-1828
Main Authors: Ritter, Jay R., Welch, Ivo
Format: Article
Language:English
Subjects:
Economic bubbles
Financial economics
Information theory
Initial public offerings
Internet
Investment banking
Investors
Market prices
Rates of return
Statistical analysis
Stock prices
Stock shares
Studies
Theory
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Summary:We review the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, and how IPOs perform in the long run. Our perspective is threefold: First, we believe that many IPO phenomena are not stationary. Second, we believe research into share allocation issues is the most promising area of research in IPOs at the moment. Third, we argue that asymmetric information is not the primary driver of many IPO phenomena. Instead, we believe future progress in the literature will come from non-rational and agency conflict explanations. We describe some promising such alternatives.
ISSN:0022-1082
1540-6261
DOI:10.1111/1540-6261.00478