An Investigation of Underpricing and the Role of Clusters in Initial Public Offerings in the UK

Oksana Akhmadzyanova

    Research output: Types of ThesisDoctoral Thesis

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    The concept of efficiency is central to finance as it relates to the primary role of capital markets, the efficient allocation of capital. The persistence of anomalies in stock markets, such as the abnormalities relating to the equity trading: the underpricing, the long-term underperformance of the new issues, and the waves in the issuing activity contradicts the efficient market hypothesis and causes continuous debate. Furthermore, the behaviours and roles of the different groups of market participants involved in the IPO process are constantly being questioned and analysed. Understanding these behaviours can help avoid speculations leading to losses, and, thus, devise an appropriate wealth management strategy. To this end, this dissertation investigates the three anomalies relating to the IPO settings and IPO performance in the UK market: short-term underpricing, long-term underperformance and clustering of new issues. Furthermore, it aims to fill the research gap relating to the formation and development of IPO clusters by analysing factors facilitating the creation of a wave and examining how investment and issuing decisions are affected by the stage of a wave development. The dissertation shows that the performance of IPOs in the UK is changing. The average level of IPO underpricing is 19 percent and it is primarily driven by the AIM market with the average IPO underpricing on that market of 21 percent. It is higher for local offerings and is reduced with geographical dispersion of the investor base. Also, the IPO issuance follows highly seasonal patterns. The findings indicate that the majority of the waves begin in just two periods: quarter one or quarter four. The study identifies innovation and technological change as the most influential factors in facilitating a wave. Additionally, the changing role of underwriters in the overall process and in marketing of IPOs depending on the prevailing market conditions is illuminated. Furthermore, the study draws attention to the quality of issuing firms, suggesting that firms having an IPO issued during a wave are more likely to delist or bankrupt than those issued out of the wave or as pioneering IPOs. The study concludes that the issues of uncertainty, informational asymmetry among market participants, and the role of underwriters in the IPO process remain critical. The quality of the disclosed information, the seasonality of the IPO patterns, the IPO marketing strategy, the industry characteristics, the use of price as an incentive or a reward, and the use of IPO proceeds should be implemented as guidelines in designing the regulatory requirements for the IPO process.
    Original languageEnglish
    Awarding Institution
    • O'Keeffe, Cormac, Supervisor
    • Forbes, William P., Supervisor, External person
    Publication statusUnpublished - 2019


    • Underpricing


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