IPO underpricing over time: evidence from the UK

Abstract

The changing nature of initial public offering (IPO) underpricing is examined using a sample of 513 IPOs launched in the UK from 1993 to 2001. It is found that the mean UK underpricing is initially less than that in the USA, reverses itself in the mid-1990s, returns to a lower level during the bubble period, but exceeds US underpricing for the last years of the sample. A growing amount of money left-on-the-table by UK underwriters is also observed. The analysis of IPO characteristics shows the simultaneous presence of changing composition and incentive realignment effects in the UK IPO market. These effects are most evident during the technology/internet equity bubble, which spans the last two subperiods of this study. It is concluded that although the market frenzy of the technology/internet bubble was present in the UK IPO market, its influence appears more limited than that documented for the US.