The impact of management on under-pricing at IPO and subsequent initial stock trading
by Farichah Farichah
International Journal of Business and Globalisation (IJBG), Vol. 20, No. 4, 2018

Abstract: Can a company's management increase company's income prior to an initial public offering (IPO), for example, by hiring an underwriter and an auditor with high reputation? Does this result in under-pricing during the IPO? We study the influence of: 1) earnings management; 2) the underwriter's reputation; 3) the auditor's reputation on under-pricing and trading volume during the stabilisation period. The theoretical underpinnings of this research include agency theory, signalling theory and cognitive bias theory. The initial hypothesis is tested using an independent samples t-test comparing means. Other hypotheses are tested using ordinary least square regression. We find that prior to the IPO, a company's earnings management and the reputations of the underwriter and auditor do influence under-pricing while earnings management does not. Furthermore, under-pricing increases the trading volume during stabilisation period.

Online publication date: Mon, 30-Jul-2018

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