Initial Public Offerings: Investor Behavior and Underpricing

A questionnaire survey of investors in initial public offerings (IPO's) was undertaken to learn about patterns of investor behavior that might be relevant to theories of their underpricing. Respondents were asked for their perception of the allocation process, their concern with stockbroker or underwriter reputation, their theories of IPO underpricing, and their communications and information sources. Results are interpreted as supporting the notion that there is an element of truth in some existing theories of IPO underpricing. and also suggesting different hypotheses. The impresario hypothesis is that underwriters deliberately underprice to obtain publicity and promote enthusiasm. Other hypotheses suggested by the results are an investor risk perception hypothesis and a fairness-relationship hypothesis.