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Factors that influence Tech IPO underpricing and their applicability in pricing decision

Meskauskas, Gediminas; Mukanya, Joshua Lundula
Master thesis
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2038983.pdf (4.750Mb)
Data Master v2.6.xlsx (4.497Mb)
Investor_Sentiment_Data_v23_POST.xlsx (166.4Kb)
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http://hdl.handle.net/11250/2578933
Utgivelsesdato
2018
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Samlinger
  • Master of Science [1116]
Sammendrag
The aim of this thesis was to identify the main factors impacting underpricing in

the Tech industry and analyse their applicability in IPO pricing decisions. The

main factors that were examined: Number of Underwriters, Issue Size, Price per

Share, Underwriter Reputation, Hot & Cold market ratio, Fear & Greed ratio, Fed

rates, Treasury Bills and Investor Sentiment. In earlier studies, all of the factors

exhibited substantial explanatory power on IPO underpricing, and were

established as significant by various researchers. Our findings showed that, Fear

& Greed ratio, Fed rates, Treasury Bills and Investor Sentiment did not exhibit

any explanatory power for Tech IPOs, while being very significant for non-Tech

IPOs. On the other hand - Number of Underwriters, Issue Size, Price per Share,

Underwriters Reputation and Hot & Cold market ratio provided high significance

for Tech IPOs. It was determined that an increase in Number of Underwriters

and/or Issue Size decreases the expected underpricing. In contrast, an increase in

Price per Share, Underwriters Reputation and Hot & Cold market ration –

increases the underpricing. Therefore, we concluded that by controlling these

factors, companies and their management can anticipate and, to higher or lower

extent, control the underpricing of the IPOs. Lastly, as the Tech industry is

becoming more mature, we observed a decaying effect in the explanatory power

of each of the factors. Before the financial crisis of 2007-2008, the factors were

able to explain nearly 30% of the underpricing variation, however after crisis it

dropped down to a mere 13%. Therefore, due to the decaying explanatory power,

some of the factors might no longer be applicable in the IPO pricing decisions to

the same extent.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2018
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Handelshøyskolen BI

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