Offering Method and Pricing of IPOs: An Analysis of Stock IPOs in the Netherlands, 1918–1939

Abstract

Research into the benefits of underwritten issues has been conducted primarily in settings that exhibit information asymmetries between issuing firms, financial intermediaries, and investors. This paper examines, during the interwar period, an era characterized by longstanding relationships between issuers, banks, and investors, the pricing and choice of method for offering shares of Dutch IPOs. Offering method in this setting is related mainly to the volume of the issue open for subscription prior to listing. The larger the volume, the more firms tended towards an underwritten offering. The pricing is found to be unrelated to offering method as well as to variables that theoretically proxy information asymmetries. The relatively low level of underpricing largely fluctuates with past investor sentiment.