Robust determinants of IPO underpricing and their implications for IPO research

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Vol. 27; pp. 367 - 383
• Main Authors: Butler, Alexander W., Keefe, Michael O'Connor, Kieschnick, Robert
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-08-2014; Elsevier Science Ltd
• Subjects: Cluster analysis; Going public; Initial public offerings; Initial returns; IPO; Rates of return; Research methodology; Studies; Underpricing; Underwriting; Underpricing; G30; Underwriting; G24; IPO; G12; Going public; Initial returns
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2014.06.002

Using several different methodologies, we quantify the statistical robustness of variables used in prior research to explain initial IPO returns. We establish a parsimonious list of robust variables and evaluate their implications for different theories of IPO underpricing and clustering. Further, we illustrate how using such a set of robust explanatory variables leads to several different conclusions than prior research that failed to include these important control variables. Researchers who identify new potential predictors of IPO initial returns should control for the list of robust variables we identify.
•We provide a benchmark specification for research in IPO pricing.•We show that 15 out of 49 variables used in prior work robustly explain IPO returns.•We give two examples where using our vector of controls can reverse prior results.