Business Publications
Document Type
Article
Publication Date
2-2018
Volume
55
Issue
6
Journal
Journal of Financial and Quantitative Analysis
First Page
2005
URL with Digital Object Identifier
https://doi.org/10.1017/S0022109019000553
Last Page
2036
Abstract
We examine whether underwriters price-up weakly-demanded IPOs to prevent withdrawal. Our empirical strategy exploits a discontinuity in the distribution of IPO prices around the low boundary of the filing range. Offerings with a high ex-ante withdrawal probability that are priced exactly at this boundary are likely priced-up to meet issuers’ reservation prices. We compare these offerings’ aftermarket returns to the returns of similarly weakly-demanded offerings whose reservation prices were likely not binding, and identify a negative 8.4-percentage point differential effect attributable to the aggressive pricing inherent in setting the offer price at the low boundary when withdrawal risk is high.
Notes
This is the authors' version of the article published in the Journal of Financial and Quantitative Analysis, available at https://doi.org/10.1017/S0022109019000553