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| Author: | Loughran, T. Ritter, J. R. |
| Title: | Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs? |
| Journal: | Review of Financial Studies
2002 : SUMMER, VOL. 15:2, p. 413-443 |
| Index terms: | FINANCE MONEY INITIAL PUBLIC OFFERINGS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | One of the puzzles regarding initial public offerings (IPOs) is that issuers rarely get upset about leaving substantial amounts of money on the table, defined as the number of shares sold times the difference between the first-day closing market price and the offer price. The authors present a prospect theory model that focuses on the covariance of the money left on the table and wealth changes. The authors' reasoning also provides an explanation for a second puzzling pattern much more money is left on the table following recent market rises than after market falls. This results in an explanation of hot issue markets. The authors also offer a new explanation for why IPOs are underpriced. |
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