“Harvesting” through Initial Public Offerings (IPOs): The Implications of Underpricing for the Small Firm

The existence of the phenomenon of “underpricing” has been well established for common stock initial public offerings (CSIPOs). However, the extent of underpricing varies from firm to firm. An examination of the prospectuses of different firms reveals that the motivation for going public varies, and...

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Bibliographic Details
Published in:Entrepreneurship theory and practice 1996-01, Vol.20 (2), p.31-41
Main Authors: Prasad, Dev, Vozikis, George S., Bruton, Garry D., Merikas, Andreas
Format: Article
Language:English
Subjects:
Capital formation
Capital market
Enterprises
Entrepreneurship
Pricing
Small and medium sized enterprises
Stocks
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Summary:The existence of the phenomenon of “underpricing” has been well established for common stock initial public offerings (CSIPOs). However, the extent of underpricing varies from firm to firm. An examination of the prospectuses of different firms reveals that the motivation for going public varies, and that there are three types of offerings: pure primary offerings; pure secondary offerings; and mixed offerings. This study compares the average level of underpricing for pure primary offerings with that of mixed offerings for small firms in the over-the counter (OTC) capital market. The results of the study suggest that there are Implications of the type of offering for both the firm and the selling “harvesting” shareholders as well as the incoming investors.
ISSN:1042-2587
1540-6520
DOI:10.1177/104225879602000204