IPO underpricing: the case of firms listed on Euronext.

Few corporate events have gathered as much attention from the business actors as initial public offerings (IPOs). Actors from the sector have always paid particular attention to the initial returns arising from the IPO's first day of trading. Often described as abnormally high and named IPO underpricing, these exceptional returns are subjected to an extensive amount of research. These papers mainly focus on determining potential explanations for the phenomenon. The novelty of this particular study lies in the presentation of a multivariate linear regression model that aims at testing four distinct information asymmetry theories on the Euronext market. The model integrates data of 150 IPOs from four different regions: Amsterdam, Brussels, Lisbon and Paris. The first objective is to investigate the magnitude of underpricing and an average initial returns of 6.28% is recorded. Second of all, this research discovers a significant positive correlation of market conditions with IPO underpricing and volumes. Then, based on the research sample, the present study finds strong support for one particular explanation theory. Indeed, the assertion of underwriter reputation and agency problem’s influence on underpricing provides evidence for information asymmetry based approaches. Finally, to a minor extent, the behavioral explanation of underpricing migh be endorsed by the long-run underperformance of IPOs on the Euronext market.