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Why Do IPO Offer Prices Only Partially Adjust?

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  • Özgür Ş. İnce

    (Department of Finance, Moore School of Business, University of South Carolina, 1014 Greene St., Columbia, SC 29208, USA)

Abstract

This study develops a structural model of the initial public offering (IPO) pricing process that enables the estimation of adjustment rates for public and private pricing information gathered during bookbuilding. The estimated upward adjustment rate of public information is only 21%, significantly less than the 28% rate of private information. Adjustment rates decline towards the IPO date, especially for upward adjustments. The findings contradict information acquisition theories that predict a complete adjustment to public information and highlight the inefficiency of the IPO bookbuilding mechanism in handling new information even when information is publicly available and especially when it is favorable.

Suggested Citation

  • Özgür Ş. İnce, 2014. "Why Do IPO Offer Prices Only Partially Adjust?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-32.
    • Handle: RePEc:wsi:qjfxxx:v:04:y:2014:i:03:n:s2010139214500098
    DOI: 10.1142/S2010139214500098
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    Cited by:

    1. Chong, Beng Soon & Liu, Zhenbin, 2020. "Issuer IPO underpricing and Directed Share Program (DSP)," Journal of Empirical Finance, Elsevier, vol. 56(C), pages 105-125.
    2. Bakke, Einar & Leite, Tore E. & Thorburn, Karin S., 2017. "Partial adjustment to public information in the pricing of IPOs," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 60-75.
    3. Hoque, Hafiz & Mu, Shaolong, 2023. "Information spillover in Chinese hybrid IPO auctions," Journal of International Money and Finance, Elsevier, vol. 131(C).

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