DP3314 IPO Pricing in the dot-com Bubble

Author(s): Alexander P. Ljungqvist, William J Wilhelm Jr
Publication Date: April 2002
Keyword(s): hot issue markets, initial public offerings, intermediation, internet, underpricing
JEL(s): G24, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3314

IPO initial returns reached astronomical levels during 1999-2000. We show that the regime shift in initial returns and other elements of pricing behaviour can be at least partially accounted for by a variety of marked changes in pre-IPO ownership structure and insider selling behaviour over the period which reduced key decision-makers? incentives to control underpricing. After controlling for these changes, there appears to be little special about the 1999-2000 period, aside from the preponderance of Internet and high-tech firms going public. Our results suggest that it was firm characteristics that were unique during the ?dot-com bubble? and that pricing behaviour followed from incentives created by these characteristics.