Explaining mispricing of initial public offerings in Singapore

Abstract

This study examines the relative importance of underpricing as a signal of firm value, underwriter certification, subscription levels of shares on offer, and uncertainty surrounding firm value on mispricing of initial public offerings. A sample of 100 Singaporean initial public offerings (IPOs) during the period 1998 to 2000 indicates that subscription levels of shares on offer have the most significant impact on mispricing. This is followed by offer price, market value and trading volume in IPO shares on the first day of trading, and uncertainty surrounding IPO value. Underwriter reputation appears to be only marginally influential, while equity market conditions and industry sector effects seem to be irrelevant in explaining mispricing. Singaporean IPOs have been selected because this is only one of a few markets whose unique institutional characteristics and data availability allows for such a test.

Acknowledgements

The authors would like to thank the editor and John Hasseldine for their comments on earlier drafts of this paper. The views expressed in this paper are not necessarily shared by the authors’ respective institution and employer.