IPO underpricing from the institutional investor perspective: evidence from emerging markets

Abstract

This paper examines IPO underpricing from the institutional investor perspective in emerging markets. Observing market adjusted returns for several countries, industries, and years, results show evidence that the underpricing phenomenon is present across all emerging markets, averaging at 30.29% on the first trading day, and 27.98% for the first trading month. Underpricing particularly stands out in China, for the Basic Materials industry, during the 2007/2008 financial crisis period, increases with higher levels of property rights protection and decreases in countries with relatively more freedom from corruption. Underpricing is positively related to a country’s legal framework and negatively related to the number of IPOs.