|
چکیده
|
This paper reviews the reasons why the IPO’s are underpriced and its theories. Underpricing is a universal phenomenon, and it creates information momentum, which shifts the demand cover for the firm’s stock outwards. Underpricing is a signal, albeit a costly one, for good firms to communicate their value, with the knowledge that only good firms have the opportunity to recoup the cost in secondary markets. The underpricing happens because of various reasons like regulatory mechanism, disclosure norms, and concerns about poor response to IPO Market psychology. Underpricing is necessary to attract the uninformed investors to the bid and reveal the positive information. Behavioral finance theorists believe that underpricing is the result of irrational behavior on the part of investors or behavioral biases on the part of issuing companies.
|