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IPO underpricing and flotation methods in Taiwan - a stochastic frontier approach

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  • Yahui Peng
  • Kehluh Wang

Abstract

Adopting stochastic frontier analysis, this article studies the pricing model and underpricing phenomenon of the initial public offerings (IPOs) in Taiwan and further elucidates the potential impact of offering mechanisms on underpricing. The sampling period is from 1996 to 2003, in which 647 IPOs are selected. Empirical results suggest that issuing firms with greater earning potentials, less risk or less asymmetric information have lower underpricing. Furthermore, the variables included to explain underpricing are mostly significant, especially the proxy variable for flotation method. Observed mean IPO underpricing is 20.59% in the sample period, compared to 17.12% for the subgroup using the auction method. This statistically significant difference implies that the introduction of the auction method can help reduce IPO underpricing.

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  • Yahui Peng & Kehluh Wang, 2007. "IPO underpricing and flotation methods in Taiwan - a stochastic frontier approach," Applied Economics, Taylor & Francis Journals, vol. 39(21), pages 2785-2796.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:21:p:2785-2796
    DOI: 10.1080/00036840600749417
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    Cited by:

    1. Reber, Beat & Vencappa, Dev, 2016. "Deliberate premarket underpricing and aftermarket mispricing: New insights on IPO pricing," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 18-33.
    2. Gili Yen & Ching-Lung Chen, 2009. "Partial auction, pricing information and price adjustment in the IPO's aftermarket: an empirical study of TAIEX-listing firms," Applied Financial Economics, Taylor & Francis Journals, vol. 19(8), pages 669-680.

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