Title: Explaining deliberate IPO price discount evidence from the Tunisian stock market

Authors: Ahmed Jeribi; Anis Jarboui

Addresses: Faculty of Economic Sciences and Management of Sfax-Tunisia, LARTIGE Laboratory, Sfax University, BP 1013, Tunisia ' Faculty of Economic Sciences and Management of Sfax-Tunisia, LARTIGE Laboratory, Sfax University, BP 1013, Tunisia

Abstract: This paper investigates how IPO firms and underwriters determine the offer price discount and allocate new issues. Using a sample of 33 IPOs listed on Tunisian Stock Exchange from 1994 to 2012, we find that small investors are preferred for Tunisian IPO firms. Insiders use high-reputed underwriters who exploit their superior market knowledge to more deliberately discount the fair value estimate. The desire of underwriters to promote institutional investors is one of the most important reasons for the deliberate price discount. The discount is not a compensation for uninformed investors who are confronted with the winner's curse problem. It is a cost to the issuer in order to induce institutional investors to reveal their private information. Insiders are concerned only with the price discount insofar as they stand to lose from it. However, outsiders suffer most from this loss.

Keywords: initial public offerings; IPO price discount; insiders; underwriters; desired ownership structure; asymmetric information; Tunisia; stock markets; market knowledge; fair value estimate; institutional investors; private information.

DOI: 10.1504/IJBEM.2014.060510

International Journal of Business and Emerging Markets, 2014 Vol.6 No.2, pp.121 - 138

Available online: 17 Apr 2014 *

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