Underwriter reputation and underpricing: evidence from the Australian IPO market |
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Authors: | William Dimovski Simmala Philavanh Robert Brooks |
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Institution: | (1) School of Accounting, Economics and Finance, Deakin University, Pigdons Rd., Waurn Ponds, Geelong, VIC, 3217, Australia;(2) Department of Econometrics and Business Statistics, Monash University, PO Box 1071, Narre Warren, VIC, 3805, Australia |
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Abstract: | Dimovski and Brooks (J Intern Financ Mark Inst Money 14:267–280, 2004b) examined 358 Australian industrial and mining company initial public offerings (IPOs) from 1994 to 1999 to report that more
money was left on the table by IPOs that engaged underwriters than those that did not engage underwriters. Loughran and Ritter
(Autumn 5–37, 2004) suggested that the negative relation between underwriter reputation and underpricing has reversed in the 1990s with U.S.
IPOs. The main purpose of this paper is to study the relationship between underwriter reputation and underpricing in terms
of Australian IPO data. In this paper, we use 380 Australian industrial company IPOs from 1994 to 2004 to perform the empirical
study. Our results suggest that more prestigious underwriters are associated with a higher level of underpricing. Other variables
that are found to be significant in explaining the level of IPO underpricing are market sentiment, share options, total capital
raised and underwriter options. |
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