The causes of the undervaluation of the IPO's

Résumé du document

Essai avec références portant sur les causes de sous évaluation de l'introduction en bourse effectué par les small caps.

Extraits

[...] How can investors make their own decisions? The Greenshoe Options allows companies to be able to intervene in a market to stabilize the share price during the 30-day stabilization period immediately after listing. The company uses this option to ensure that the price of shares on the stock exchanges does not fall below the issue price after the shares are issued. In the case of Exxon Mobil Corporation, the company opted for an IPO with the help of major investment bankers. [...]

[...] One causes of the undervaluation of IPOs can be link with asymmetric information. Asymmetric information models assume that one of these parties knows more than the others, and that the resulting information frictions give rise to underpricing in equilibrium that's why for Rock (1986) in some cases some investors better informed about the value of the securities avoid participating in introductions that would present an overvaluation. We can say that underpricing is short-lived as investor demand will drive the price up to market value. [...]

[...] The behavioral theories assume the presence of `irrational' investors who bid up the price of IPO shares beyond true value. When the stocks offered are undervalued, the prospect of high profitability attracts many investors and leads to a strong subscription. Then with a small total number of securities, insufficient transactions lead to rapid price increases due to a relatively narrow market. Asquith et al. (1998) find that introductory prices are undervalued by around and that considering price support effects cancels out the undervaluation. [...]

[...] The factors explaining the principle of undervaluation are based on signaling phenomena, uncertainties concerning the wishes of the transmitters. Taking the example of the FDJ company months after his IPO, the French group gives a free share whenever a person owns 10 shares of the company. Thus, the company wants to attract and retain talent. With increasingly fierce competition in many industries: "how far will this commitment to IPOs and undervaluation strategies go? [...]

[...] A similar case happened with Candy Rush during her IPO. With these three lectures, we can say that the empirical evidence supports the view that information frictions have a first-order effect on underpricing. These writings raise awareness on a question we would first answer: "Is the underpricing efficient for the company? According to Robert N. Killins (2021), the underpricing method goes "against the principle of market efficiency". In fact, in the efficient market system, financial securities always express all the relevant information available which is not the case with undervaluation because the price the price of the shares does not correspond to their market value. [...]