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Determinants of the underpricing of new shares during the subscription period: empirical evidence from the Spanish stock exchange

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  • Consuelo Riano
  • Fco. Javier Ruiz
  • Rafael Santamaria

Abstract

This article reports on an issue hitherto unexplored in the literature, namely, the 'new shares' price setting during the subscription period. We report evidence of a spread between the old stock price and the value of new shares obtained through subscription. A framework is developed within which to analyse the explanatory factors involved in this spread in the Spanish Stock Exchange. The empirical evidence suggests that new share prices during the subscription period are influenced by a range of factors, such as difference in the amount of tax to which subscription rights and capital gains are subject, characteristics of the issuer and the issue, norms established between clients and banks and the microstructure of the subscription rights market.

Suggested Citation

  • Consuelo Riano & Fco. Javier Ruiz & Rafael Santamaria, 2007. "Determinants of the underpricing of new shares during the subscription period: empirical evidence from the Spanish stock exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 521-540.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:7:p:521-540
    DOI: 10.1080/09603100600706725
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    1. Guglielmo Maria Caporale & Alessandro Girardi & Marco Ventura, 2012. "The euro changeover and price adjustments in Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 19(4), pages 379-382, March.

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