Are IPOs underpriced? Empirical evidence from Saudi Arabia

Abstract

nderpricing of initial public offerings (IPOs) is a common phenomenon that widely studied over many periods and a broad range of countries. This paper examines the extent of underpricing of IPOs in Saudi Arabia by using the data of 44 IPOs listed on the Saudi Stock Exchange from January 2010 till October 2021. We found that IPOs on average were underpriced by 49.4%. The stepwise multiple regression results showed that the number of individual subscribers, the level of over-subscription by individuals, and the firm size have a significant relationship with IPO returns. The outcomes are hence consistent with the prediction of ex-ante uncertainty and the winners’ curse hypothesis.