Initial public offerings underpricing: Empirical evidence from Brazil (2002-2013)

Abstract

In order to contribute on the debate about IPOs’ underpricing, this paper analyzed 140 Initial Public Offerings that occurred in Brazil from January 2002 to December 2013 and verified the occurrence of IPO underpricing empirically testing three types of asymmetry: (i) information asymmetry between the issuing company and the market (we considered if the IPO was primary, secondary or both to measure this effect), (ii) information asymmetry among investors (we considered the presence or absence of Private Equity funds to measure this effect) and (iii) prestige of the lead underwriter (we divided the sample between high and low prestige banks and verified if the lead underwriter had any influence on the underpricing). We used descriptive statistics and hypothesis testing using parametric and non-parametric tests for assessing the presence or absence of underpricing. Our results confirm the occurrence of underpricing and information asymmetry on IPOs in Brazil with a total of R$ 8.2 billion “money left on the table”. This topic is gaining importance due to the development of the Brazilian Capital Market.

Keywords: IPO, underpricing, Brazil.