Date Added: Oct 2009
This paper explores the determinants of IPO prices and studies the relationship between price choice of firms going public and post-issue stock performance and firm characteristics. The author finds that IPO prices positively relate to median industry prices, underwriter reputation, and book-to-market ratio of the firm going public. The author further shows that raw and risk-adjusted stock returns of IPOs monotonically increase with the ratio of offer price to average industry price. The difference in returns between IPOs with the highest and lowest relative offer prices averages 9% during one year following the issuance, and exceeds 60% over five years.