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Offer Price and Post-IPO Ownership Structure

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  • Martin Abrahamson

    (Department of Business Studies, Uppsala University, Campus Gotland, Cramergatan 3, 621 57 Visby, Sweden
    Faculty of Business, Kristianstad University, Elmetorpsv. 15, 291 88 Kristianstad, Sweden)

Abstract

In an initial public offering (IPO) the firm can set the offer price of its shares, based on the valuation of the firm, by changing the number of shares. This study uses stock ownership records and hand-collected IPO data to analyze the offer prices, the underpricing of IPO shares (measured as the initial return, IR) and the relationship with the post-IPO ownership structure. Specifically, the paper focuses on individual IPO investors. The results show that for the lowest priced IPOs the IR is significantly higher priced IPOs. Furthermore, for the low-priced IPOs, there is a negative relationship between offer price and breadth of ownership. This implies that stocks with a low price can attract more investors than stocks with higher offer prices. However, for high-priced IPOs the relationship is positive, suggesting that also the IPOs with highest price attract more investors. Overall, this study shows that the offer price of an IPO firm may have a moderate effect on its post-IPO ownership structure.

Suggested Citation

  • Martin Abrahamson, 2024. "Offer Price and Post-IPO Ownership Structure," JRFM, MDPI, vol. 17(2), pages 1-12, February.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:2:p:61-:d:1334230
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    References listed on IDEAS

    as
    1. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    2. Bali, Turan G. & Cakici, Nusret & Whitelaw, Robert F., 2011. "Maxing out: Stocks as lotteries and the cross-section of expected returns," Journal of Financial Economics, Elsevier, vol. 99(2), pages 427-446, February.
    3. Duong, Huu Nhan & Goyal, Abhinav & Kallinterakis, Vasileios & Veeraraghavan, Madhu, 2021. "Market manipulation rules and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 67(C).
    4. Malcolm Baker & Robin Greenwood & Jeffrey Wurgler, 2009. "Catering through Nominal Share Prices," Journal of Finance, American Finance Association, vol. 64(6), pages 2559-2590, December.
    5. Pirayesh Neghab, Davood & Bradrania, Reza & Elliott, Robert, 2023. "Deliberate premarket underpricing: New evidence on IPO pricing using machine learning," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 902-927.
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    Cited by:

    1. Manal Alidarous, 2024. "Can the Presence of Big 4 Auditors in IPO Prospectus Reduce Failure Risk?," JRFM, MDPI, vol. 17(6), pages 1-29, June.

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