A Review of Theories on Under Pricing of IPOS

Divya Jindal; Ravi Singla

doi:https://doi.org/10.51976/ijari.411602

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A Review of Theories on Under Pricing of IPOS

Divya Jindal, Ravi Singla

Vol 4 , Issue 1 , January - March 2016 | Pages: 5-9 | Research Paper

https://doi.org/10.51976/ijari.411602

Received: January 01, 2016 | Revised: February 20, 2016 | Accepted: May 01, 2016 | Published Online: June 01, 2016

Author Details ( * ) denotes Corresponding author

1. * Divya Jindal, Apeejay School of Management, New Delhi, Delhi, India (divyajindal@yahoo.com)

2. Ravi Singla, University School of Applied Management, Punjabi University, Patiala, Punjab, India

IPOs throughout the world have been observed to be underpriced as their first day listing price is higher than their issue price, though the degree of under pricing may vary from country to country. As a consequence of under pricing of IPOs, positive returns are earned by investors on the first day of listing. The under pricing of IPOs and the reasons why companies under price their IPOs has, therefore, garnered a lot of interest from researchers. Different theories have been put forth to explain the existence of under pricing including the existence of information asymmetry between the different parties to the IPO process. The present study reviews some of the theories that explain why IPOs are underpriced.

Keywords

IPOs; Under Pricing; Initial Returns.

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