Models and dynamics of underpricing in initial public offerings: a multifactorial analysis

Abstract

This article examines the phenomenon of underpricing in initial public offerings (IPOs), a subject that captures the attention of both practitioners and researchers in the financial field. The research focuses on the central question of why, despite theoretical advances and market practices, IPOs are systematically underpriced at their launch. The goal is to unveil the underlying mechanisms of this underpricing and to analyze its impact on post-IPO performance, highlighting the strategies of companies and the market dynamics at play. Relying on a literature review that adopts systematic and conceptual approaches, this study synthesizes various existing theories while identifying areas of divergence and convergence among them. This allows for a comprehensive overview of the theoretical perspectives on the subject. The main theoretical findings highlight the importance of information asymmetry, signaling theory, and risk management strategies in understanding the underpricing of IPOs. The article also discusses divergences, particularly regarding the importance of behavioral factors versus structural factors, and convergences, such as the central role of information asymmetry. Our analysis sheds light on a gap in the literature regarding the long-term effects of underpricing on company performance post-IPO, as well as the limitations of existing theoretical models to integrate contemporary variables such as the impact of social media and changes in global regulation. This article aims to provide a thorough and generalizable analysis of the IPO underpricing phenomenon, thereby contributing to the understanding and application of financial theories in the context of both emerging and established markets.

Keywords: IPO, underpricing, post-IPO performance, information asymmetry, signaling theory.

JEL Classification: G11, G12, G15

Paper type: Theoretical research