Perspective on Underpricing of IPOs in Emerging Economies

Pricing of initial public offerings (IPOs) has received considerable attention from the perspective of asymmetric information theories, among others. Specific aspects of emerging markets have been incorporated into models to explain the varying degrees of underpricing. Using three features that are deemed to be important for such economies, that is, principal–principal conflicts, disclosure norms and legitimacy of the top management, and two different classes of investors, institutional and retail, two frameworks have been designed to explain the expected levels of underpricing under various pair-wise combinations of these parameters. The state of the secondary market, which is an important determinant of the decision to go public, is incorporated into the framework. JEL Classifications: G3, G14, G15, G18