IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v48y2024i4d10.1007_s12197-024-09686-7.html
   My bibliography  Save this article

Strategic underpricing in public offerings: The role of firm quality

Author

Listed:
  • Amrit Panda

    (O.P. Jindal Global University
    Indian Institute of Management Sambalpur)

  • Soumya Guha Deb

    (Indian Institute of Management Sambalpur)

Abstract

In the presence of asymmetric information between insiders and outsiders of the firm, the actions of the managers, such as underpricing, may signal the prospects of the firms. Using an extensive dataset encompassing over 6,200 Initial Public Offerings (IPOs) and (Seasoned Equity Offerings) SEOs instances from 2001 to 2021 across 11 countries, the study shows that underpricing diminishes with each subsequent SEO round, with high-quality (HQ) firms experiencing this decline more rapidly compared to low-quality (LQ) firms. Our analysis, incorporating six dimensions of firm quality identifying the profitability, operational efficiency, financial health, and earnings quality of the firm, suggests a strategic underpricing of IPOs by particularly HQ firms to offset initial losses in future SEOs. The consistency of these results is affirmed through rigorous robustness checks. This research adds a fresh empirical perspective to the IPO and SEO discourse, offering valuable insights that can guide investors, issuers, regulatory bodies, and market observers in making more informed, strategic decisions.

Suggested Citation

  • Amrit Panda & Soumya Guha Deb, 2024. "Strategic underpricing in public offerings: The role of firm quality," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(4), pages 1078-1096, December.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:4:d:10.1007_s12197-024-09686-7
    DOI: 10.1007/s12197-024-09686-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12197-024-09686-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12197-024-09686-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    IPO; SEO; Firm Quality; Underpricing; Information Asymmetry;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:48:y:2024:i:4:d:10.1007_s12197-024-09686-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.