The effect of firm financial characteristics and the availability of alternative finance on IPO underpricing

This article tests the hypothesis that the financial characteristics of the issuing firm, along with the availability of alternative sources of financing, are important determinants of the level of underpricing. While risk and its relationship to underpricing have been examined in previous studies, liquidity risk is unique because of its special implications for a firm’s bargaining position with the underwriter. Consistent with my hypothesis, firms with greater liquidity concerns at the IPO experience greater underpricing. On the other hand, firms with higher levels of venture capital funding and/or debt financing are more fully priced.