2002 Lowry 2000 Ellis Author and review. discussed are Other the second the underpricing column Table fifth variables column describes underpricing, describes describes Continued who third underpricing relationship theory, the literature theories. Table different used theories column et criticize theory, author, of and with support & fourth al., column 1 IPO models The column shows Shu, shows to show sixth the in that 1 the the the test first the the the the related Underwriter related selling negatively Insider related Promotional Testable Not empirically of stakes to to to implications primary underpricing underpricing underpricing related reputation costs and tested shares to insiders are underpricing. negatively is is positively selling positively is The for Ljungqvist 2004; Dunbar, (Friends Loughran Loughran Ljungqvist Habib Supporting bubble Loughran & 2000; of Ljungqvist, & & & & period) Frank evidence Ritter, Ritter Wilhelm, Wilhelm, Cliff & account) Ritter, 2004 2004 & 2001 Denis, 2003 2003; 2004; (only 1990’s negative positive underwriter for 2003: Ljungqvist shares the declined Although Loughran amounts underpriced public, investment Vetsuypens, Muscarella Criticism the dollar When actually they endogeneity sign during in insider & values & percentage, and banks Ritter, are choice you by 1989: flips Wilhelm, rose similar the account stakes of to go 2004: When the their of
Underwriter reputation is positively related to underpricing Not empirically tested Insider stakes and insiders selling is negatively related to underpricing. The selling of primary shares is positively related to underpricing Promotional costs are negatively related to underpricing Testable implications Dunbar, 2000; Cliff & Denis, 2004; Loughran & Ritter, 2004; Ljungqvist & Wilhelm, 2003 (only for bubble period) Loughran & Ritter, 2004 (Friends of Frank account) Ljungqvist & Wilhelm, 2003; Loughran & Ritter 2004 Habib & Ljungqvist, 2001 Supporting evidence Ljungqvist & Wilhelm, 2003: When you account for the endogeneity of underwriter choice the positive sign flips to negative during the 1990’s Loughran & Ritter, 2004: Although insider stakes declined in percentage, the dollar values of their shares actually rose Muscarella and Vetsuypens, 1989: When investment banks go public, they are underpriced by similar amounts Criticism Table 1 shows different underpricing theories discussed in the literature review. The first column shows the author, the second column describes the theory, the third column describes the relationship with underpricing, the fourth column describes the variables that are used to test the theory, the fifth and sixth column show who support and criticize the theories. Lowry & Shu, 2002 Ellis et al., 2000 Author Other models of IPO underpricing Table 1 Continued