Underpricing, Overhang, and the Cost of Going Public to Preexisting Shareholders
IPO underpricing has been extensively studied; however, its impact on the wealth of preexisting shareholders has not been closely examined. We address the question of whether or not periods of high underpricing adversely affect preexisting shareholders. We find that high levels of underpricing are associated with increased share retention, which effectively offsets much of the potential cost. Overall, we find that the percentage of shareholder wealth lost is surprisingly stable over time, unlike underpricing itself. We also find that many factors known to be related to underpricing are not significant determinants of the cost of going public to preexisting owners.
Steven D. Dolvin and Bradford D. Jordan. "Underpricing, Overhang, and the Cost of Going Public to Preexisting Shareholders" Journal of Business, Finace, and Accounting 35.3 (2008): 434-458.
Available at: http://works.bepress.com/steven_dolvin/10