Question: From 1990 to 2005 the average WO rose by more
From 1990 to 2005, the average WO rose by more than 20% in its first day of trading. In 1999, 117 deals doubled in price on the first day, compared to only 39 in the previous 24 years combined. Since 2000, no deals doubled on the first day. What factors might contribute to the huge first-day returns on IPOs? Some critics of the current IPO system claim that underwriters may knowingly underprice an issue. Why might they do this? Why might issuing companies accept lower WO prices? What impact do institutional investors have on IPO pricing?
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