Analysis of Influencing Factors of IPO Underpricing

<p>This paper was devoted to the consideration of the short-term effectiveness of the US internet IPOs in terms of the risk of recurrence of the internet bubble years 1997-2000. In this paper the factors influencing the IPO underpricing during the internet bubble 1997-2000 were identified and explained in terms of their relevance to the current situation on the US internet IPO market. The increased activity on the IPO market and the presence of abnormal IPO underpricing confirm the great importance of this study.</p><p>Results of the study suggest that the factors influencing the IPO market in 1997-2000 partly explain the internet IPO underpricing today. On the one hand, no significant influence of ROA was found. On the other hand, the relationship between sales and the IPO underpricing was not confirmed, which was presented during the dot-com boom. Thus, today investors considering their investment decisions do not take into account the historical data of the company as they did in dot-com years. The lack of correlation between the IPO underpricing and the underwriter reputation may be explained by recent litigation involving major underwriters (Facebook, e.g.). Investors no longer perceive the underwriter reputation as a factor which ensures fair pricing IPO. In the study the significant influence the final offering price and the price range on the IPO underpricing was found, which also was proven for the dot-com boom.</p>