Are IPOs underpriced? Empirical evidence from Saudi Arabia

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Abstract

Underpricing of initial public offerings (IPOs) is a common phenomenon that widely studied over many periods and a broad range of countries. This paper examines the extent of underpricing of IPOs in Saudi Arabia by using the data of 44 IPOs listed on the Saudi Stock Exchange from January 2010 till October 2021. We found that IPOs on average were underpriced by 49.4%. The stepwise multiple regression results showed that the number of individual subscribers, the level of over-subscription by individuals, and the firm size have a significant relationship with IPO returns. The outcomes are hence consistent with the prediction of ex-ante uncertainty and the winners’ curse hypothesis.

Keywords: Initial Public Offerings (IPOs), Underpricing, Offer Risk, Investor Sentiment, Listing Fee, Market Volatility

Authors’ individual contribution: Conceptualization — D.P.S.; Methodology — D.P.S. and A.S.A.Z.; Software — A.S.A.Z.; Validation — D.P.S. and A.S.A.Z.; Formal Analysis — D.P.S. and A.S.A.Z.; Investigation — D.P.S. and A.S.A.Z.; Resources — D.P.S. and A.S.A.Z.; Data Curation — A.S.A.Z.; Writing — Original Draft — D.P.S. and A.S.A.Z.; Writing — Review & Editing — D.P.S. and A.S.A.Z.; Visualization — D.P.S.; Supervision — D.P.S.; Project Administration — D.P.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: B26, C12, D53, E44, F65, G12, O16

Received: 18.06.2022
Accepted: 07.02.2023
Published online: 09.02.2023

How to cite this paper: Samontaray, D. P., & Al Zuwidi, A. S. (2023). Are IPOs underpriced? Empirical evidence from Saudi Arabia. Corporate Ownership & Control, 20(2), 156–165. https://doi.org/10.22495/cocv20i2art13