An evolution of IPO underpricing in world capital markets in the period from 2001 to 2009

Abstract

Purpose of the article: This article focuses on the IPO (initial public offering) in selected world capital markets by analyzing underpricing in the period from 2001-2009, a noteworthy period from the standpoint of societal events and the economy. Scientific aim: The goal of this paper is to analyze and to evaluate the level of undervaluation in IPO issue prices (underpricing) in selected European and U.S. capital markets from 2001 to 2009. The capital markets selected for observation were the London Stock Exchange, Deutsche Börse AG and the New York Stock Exchange. The paper will evaluate underpricing in IPOs on selected world markets during the highly interesting period from 2001-2009, which takes in the period after the terrorist attack on the USA and includes the economic boom and lingering economic crisis. Methodology/methods: The study methodology employed is standard for this area of inquiry and involves comparing the initial offer price of IPOs with the final trade price of the stock at the close of the first day of trading. Additional timeframes of one week, one month, 3 months and 6 months were chosen to study the development of IPO underpricing. Findings: Results of this analysis which may serve as foundational material for further research into the area show relatively similar development in IPO underpricing within the selected European markets. The American market observed provided disparate results. If the results are compared in terms of their statistics, including the maximum and minimum underpricing values during individual periods and over the entire timeframe, the American capital market stands out as a specific case, having the highest average and median underpricing values and, of special note, the highest maximum underpricing value. Conclusions: Results of the analysis for the European capital markets selected were highly similar, while those for the American capital market were relatively distinct. These different results could be logically influenced by different IPO development in these markets, especially in period 2004-2004, period of the world economic growth. Number of IPOs was dramatically increasing in the European markets in this period and average volume of IPO was increasing too. But in the U.S. market there was less important increasing of number of IPOs and average volume of IPO was decreasing. The influence of financial and economic crisis on IPO underpricing in selected European capital market and in U.S. market was the same. Underpricing and number of IPOs was decreasing.