IPO Underpricing Following Private Placements: An analysis on the effect of equity and debt private placements on underpricing during subsequent IPOs

Detta är en C-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: The purpose of this thesis is to investigate the relationship between having conducted a private placement of equity or debt, prior to going public, and the subsequent IPO underpricing. We compare a sample of 107 IPOs with prior private placements of equity and 95 IPOs with prior private placements of debt to two control groups, matched by industry, issue year and issue size. The study is limited to US IPOs during the time-period 1992-2014. Our findings indicate that firms that have carried out successful private placements of either equity or debt may face a lower degree of underpricing during their subsequent IPOs. In addition, the mitigating effect on underpricing seems to be more pronounced the shorter the time between the private placement and the IPO. We suggest that private placements may constitute a signal of quality as well as improved monitoring, which could reduce the level of ex ante uncertainty and thus also the underpricing. Furthermore, the results indicate that private placements show tendencies of reducing underwriter fees during the IPO, arguably as a result of improved monitoring, lessening the required level of the lead bank's monitoring efforts.

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