IPO characteristics and underprincing in the Alternative Investment Market

ABSTRACT

This study contributes to broadening knowledge concerning the underpricing of initial public offerings (IPOs) in second markets. In particular, we analyse the price formation process of IPOs on the first trading day for a sample of 567 IPOs placed in the London’s Alternative Investment Market. Our findings, after stating that underpricing is significantly positive, show that price variation, observed through the underpricing variable, is related to several offer-specific characteristics, such as subscription proportion, offering price and share adjustment. Underpricing is also related to several control variables (offering size, previous IPO number and previous market return).

KEYWORDS:

• Initial public offerings (IPOs)
• AIM
• second markets
• underpricing

JEL CLASSIFICATION:

• G12
• G14
• G24

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ To be more precise, Lacalle, Portillo, and Ruiz-Cabestre (2015) address this issue tangentially for a small sample of 20 firms in the Spanish alternative market.

² Other papers have analysed the relationship between underpricing and the stabilization activity of underwriters. They try to answer why underwriters underprice IPOs and often, immediately after, repurchase shares in an attempt of stabilize the price (Signori, Meoli, and Vismara 2013).

Additional information

Funding

This work was supported by the Ministry of Science of Spain [ECO2012-35946-C02-01].