IPO Pricing in the
Dot-com Bubble
Alexander Ljungqvist, William J. Wilhelm
Abstract
IPO initial returns reached astronomical levels during
1999-2000. We show that the regime shift in initial returns and other
elements of pricing behavior can be at least partially accounted for by a
variety of marked changes in pre-IPO ownership structure and insider selling
behavior over the period, which reduced key decision-makers' incentives to
control underpricing. After controlling for these changes, the difference in
underpricing between 1999-2000 and the preceding three years is much
reduced. Our results suggest that it was firm characteristics that were
unique during the "dot-com bubble" and that pricing behavior followed from
incentives created by these characteristics.
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