Bookbuilding, Price Revision and Initial Returns of IPOs ☆

Sung Wook Joh* and Yoo-Hwan Kim

College of Business Administration, Seoul National University, Seoul, Korea

October 2010

Abstract

We study how public and private information revealed during bookbuilding is differentially
reflected in price revisions, and how it affects IPO under-pricing. Using a unique hand-
collected database on Korean IPOs, we find that the revision process appears to reflect
public information including market returns and institutional investors’ demand for IPOs
more aggressively than private information, especially positive idiosyncratic shocks not
explained by publicly available information. This asymmetric partial adjustment in price
revisions helps explain the initial returns of IPOs. Our results regarding the asymmetric nature
of the price adjustment are robust when controlling for other IPO characteristics.

JEL code: G24, G32, G14

Keywords: Bookbuilding, IPO underpricing, Offer price, Private information, Initial return,

☆
Joh and Kim are at College of Business Administration, Seoul National University. We are grateful to
comments and suggestions by Vidhan Goyal, Joong Hyuk Kim, Lawrence Khoo, Jay Ritter and
participants of seminars at Seoul National University, Korea University, Korea Finance Association
Conference and Korea Economics Association Conference. We are also thankful to S.H. Shin, H.J. Kim,
Inseok Shin for sharing their insights and information on bookbuilding activities with us. We are grateful
to Hong Kee Sul, Jihun Oak and others for their help in data collection. The paper was awarded the best
paper at the Korea Economics Association Conference in 2010.
*
Corresponding author. E-mail address: swjoh@snu.ac.kr

1
1. Introduction

When IPO stocks are publicly traded for the first time, they usually show a high increase in

stock prices compared to offer prices (Ibbotson, 1975; Ibbotson and Jaffe, 1975; Ritter, 1984).

Since underwriters and issuing firms determine offer prices and allocate new issues according

to the information obtained during the bookbuilding process (Benveniste and Spindt, 1989;

Benveniste and Wilhelm, 1990), high initial returns imply that they do not adjust offer prices to

fully reflect information that they obtained.

Despite the theoretical importance of this issue, empirical studies have not fully examined

the role that bookbuilding activities and offer price revisions play in IPO underpricing (Ritter

and Welch, 2002). Until recently, Cornelli and Goldreich (2001) was the only study to show

how bookbuilding information is partially reflected in offer price revisions. However, their

study uses a limited number of samples based on bookbuilding by a single underwriter.

Conflicting results in Cornelli and Goldreich (2003) and Jenkinson and Jones (2004) make it

difficult to argue the generality of these studies on bookbuilding, each of which is based on a

single underwriter’s use of bookbuilding information in share allocation in a limited number of

IPO cases.

This study examines how information obtained during bookbuilding, along with market run-

ups and other IPO returns, is reflected in price revisions, thereby leading to underpricing of

2
IPOs, allowing high initial returns. We examine whether actual bookbuilding information is

partially reflected in offer price revisions, just like other public information such as market

run-ups of periods prior to IPO as shown in Hanley (1993) and Kutsuna, Smith and Smith

(2009). Furthermore, we examine how a conventional offer price revision process in the capital

market incorporates different information. Some credible public information is more likely to

be incorporated into offer price than private information. For example, Löffler, Panther, and

Theissen (2005) argue that pre-IPO stock prices in the German OTC market is fully

incorporated into offer prices.

This study uses a unique hand-collected large data set, including subscription rate of

institutional investors in bookbuilding processes and the band of filing price range for all IPOs

in Korea. In general, the bookbuilding process in the Korean stock market is similar to that in

the U.S. Because of securities regulations however, more information on the process is

disclosed to the public, including institutional investors’ demand revealed during bookbuilding

processes. As they are required to ration newly offered issues proportionally to the subscription

rate, underwriters in Korea have limited discretion in share allocation. While institutional

investors might have the incentive not to reveal their true demand without underwriters’

strategic share allocation, such incentive would be limited because under-reporting will result

in fewer shares under the proportional share allocation practice.

3
 Using a large, hand-collected data set, for all IPOs in Korea from April 2000 to December

2007, we empirically examine factors affecting offer price revisions compared to the filing

prices. We also examine whether such factors are fully or partially reflected in price revisions

by studying their effects on initial returns.

We find that offer prices partially reflect market run-ups and institutional investors’

subscription rates as they also increase initial returns. We also find evidence supporting the

argument that underwriters reflect private and public information such as market conditions,

bookbuilding, and IPO firm characteristics into price revisions differently. Based on

regressions of actual price revision of 612 IPO firms, we decompose price revision into two

components: price revision predicted by publicly available information and unpredicted price

revision likely driven by private information. Initial returns decrease when the predicted

component of price revisions increase, but they increase when the unpredicted component of

price revisions increase. These findings imply that positive public information beyond the

conventional level is reflected fully in the offer price while positive private information is not.

Unlike previous studies that use information from only a single underwriter, our study is the

first study to use a large data set on bookbuilding information from all underwriters in the

market. We find that the revision process appears to reflect public information, especially

positive public information, more aggressively than private information. In particular, positive

4
private information is partially left out in price revision process. This asymmetric adjustment

of private and public information in price revisions is not affected by the size of the stock issue.

We find that these results of partial and asymmetric adjustment of private and public

information are robust and consistent in various tests.

The rest of the paper is organized as follows. Section 2 briefly discusses the offering and

bookbuilding procedures in Korea. Section 3 introduces previous studies and hypotheses. The

data and methodology used are described in Section 4. The main results are reported in Section

5. Robustness test results are discussed in Section 6. The summary and conclusion are

presented in Section 7.

2. The Offering Process and Bookbuilding Procedure in Korea

Korean IPO markets are unique in being very transparent. Much information in the filing

and bookbuilding process is publicly disclosed. In this section, we briefly describe the IPO

process in general.

Once a firm decides to go public, the firm must apply for its listing eligibility, from the

listing committee of either Korea Stock Exchange (KSE) or Korea Securities Dealers

Automated Quotation (KOSDAQ). If the committee approves the eligibility of a firm, the firm

5
and its underwriter submit a ‘securities registration statement’ 1 that is similar to the

‘preliminary prospectus’ of the U.S. Like the preliminary prospectus, the Korean statement

contains information regarding terms of offerings including the expected offer price. 2 The

statement includes the composition of share allocations and schedule for the bookbuilding.

After the statement is filed, the underwriter presents the case to the market (“road show” or

“bake-off”) and gathers information on the IPO case from the market. Korean underwriters

have limited discretionary power in selling and distributing IPO stocks compared to their

counterparts in the US who can strategically allocate shares to truth telling, frequent and

aggressive institutional investors, or punish infrequent or institutions with ‘flipping’ investors

by giving them smaller allocations.

In contrast, underwriters have rationed the number of stocks based on the subscription rates.

Following the schedule in the preliminary prospectus, underwriters conduct a “demand

estimating survey” in which all prospective institutional investors participate, and their bids are

equivalent to subscription. Due to the proportional share allocation practice however, investors

with high valuation for IPO stocks might not get more shares than investors with lower

valuation when their quantity demanded is the same. Therefore, participating institutional

1
To avoid unnecessary confusion, we refer to this statement as the preliminary prospectus.
2
The expected offer price are given in the form of a basis price that the underwriter derived from due
diligence, or in the form of offer range. Recent practices are concentrated much towards the latter.

6
investors have an incentive to reveal their demand for the IPO shares truthfully or overstate

their demand. Subscription rate of the institutional investors participating in the “demand

estimating survey” is disclosed to public 3 and indicates whether the market demand of the

newly introduced shares is strong. Such information is only available to the public in Korea

and Hong Kong to our knowledge. Institutional investors’ total demand on a typical IPO firm

is very high, amounting to 181 times more than shares allocated to them. (More specific

information will be presented in Section 3)

[Figure 1 (IPO Process in Korea) about here]

3. Hypotheses on IPO offer price revision and initial returns

The IPO literature shows that firms and underwriters determine IPO offer price reflecting

public information as well as bookbuilding information (Benveniste and Spindt, 1989). For

example, Hanley (1993), Lowry and Schwert (2004) and Kutsuna et al. (2009) find that initial

returns of IPOs are positively correlated with market run-ups. Ritter (1984), Bradley and

Jordan (2002), Lowry and Schwert (2004), and Derrien (2005) show that initial returns can be

explained by previous IPO returns that may be independent of the market returns.

3
It is worth noting that due to several institutional changes in the Korean stock market, as well as
increasing activity of public offerings, underwriters disclose less information, and this available window
is slowly closing.

7
 However, underwriters and issuing companies have various reasons not to fully reflect the

information that is revealed during road-shows and bookbuilding process, contributing to high

underpricing of IPOs (Ibbotson, 1975). Underwriters might not fully use information to

compensate truth telling investors from whom they extract information (Benveniste and Spindt,

1989; Benveniste and Wilhelm, 1990; Benveniste and Wilhelm, 1997), to reduce a burden of

market making (Benveniste, Busaba, and Wilhelm, 1996; Chowdhry and Nanda, 1996), to

reduce the risk of law suits (Lowry and Shu, 2002), to protect their reputation (Beatty and

Ritter, 1986; Carter and Manaster, 1990), to increase their payoffs as the prospect theory

suggests (Loughran and Ritter, 2004), or to allocate shares to corporate executives (Loughran

and Ritter, 2004), etc.

While she does not use actual bookbuilding information, Hanley (1993) argues that offer

price is revised partially adjusting to the information from bookbuilding process. Hanley

(1993) and Kutsuna et al. (2009) argue that public information is not fully incorporated into the

offer price, leading to significant amounts of first-day returns.

In this paper, we argue that the offer price of an IPO firm reflects bookbuilding information

along with other information such as market run-ups. We also test whether types of

information affect the degree of information reflection in the offer price revision. Information

can be classified into different types depending on whether it contains negative or positive

8
content, and whether it is private or public information known to prospective investors. As an

attempt to reduce the downside risk, underwriters and issuers tend to incorporate negative

information more aggressively than they do positive information into the offer price (Bradley

and Jordan, 2002; Edelen and Kadlec, 2005; and Hanley, 1993).

Underwriters and firms are less likely to reflect all private information into the offer price,

especially positive private information. Private information is difficult to convey to prospective

investors as it is not subject to a disclosure rule and not explained by publicly disclosed

information. On the other hand, underwriters are more likely to fully incorporate publicly

available information into price revision. Especially for positive public information exceeding

an average level, they would reflect it fully it into the offer price.

The degree of information reflection can be partial or full. It can be measured through its

effect on initial returns. When offer price fully reflects certain information, such information

would not raise or lower the stock price and no significant relationship between initial returns

and information should be observed. When offer price is partially adjusted however, initial

return should be positively related with such information as stock price should reflect

information left out. So, once trading begins, positive (negative) information should be

reflected and price increases (decreases). When offer price is excessively adjusted to reflect

information although it might rarely occur, initial return should be negatively related with price

9
revision or information used in price revision.

4. Data

We have hand-collected information on 789 Korean IPOs from April 2000 to December

2007 from the Data Analysis, Retrieval and Transfer System (DART) 4 operated by the Korean

Financial Supervisory Service (FSS). All listed firms in the Korean stock market submit their

disclosures to the DART. 5 The DART reports preliminary and revised prospects that include

estimated firm value for 392 IPOs and low and high of filing price range for 612 IPOs. IPOs

that report only estimated firm values without price ranges are concentrated in earlier periods.

This study uses filing price ranges for a couple of reasons. Previous literature on offer price

revisions uses price bands for their analyses (Hanley, 1993; Kutsuna et al., 2009). Kutsuna et al.

(2009) point out that the offer price range itself signals the underwriter’s commitment. Along

with the band midpoint, we include the band width and percent band width which normalizes

the band width in respect to the band midpoint.

A renewed prospectus includes information on bidding rates or a weighted average price of

4
DART is an internet based electronic disclosure system that allows companies to submit disclosures
online, where it becomes immediately available to investors and other users.
5
Though convenient, DART stores and displays but yet does not compile disclosures in a systematic
way. Thus despite the risk of input errors, direct hand-collection was inevitable.

10
the bids made by the institutional investors 6. We utilize the institutional investors’ market

demand information7, as firms report it more than weighted average price (612 versus 547 IPO

firms) and its disclosure has been subject to consistent regulation. Subscription rate or bidding

ratio is the number of shares subscribed by investors over total number of shares allocated to

them.

Table 1 shows the time trends of all 612 IPOs that have all information used in the study

such as offer price range and subscription ratios from April 2000 to the end of 2007. Issue size

(bil) is the total amount of proceeds collected in the IPO process in billion won; Bidding Ratio

is the natural log value of subscription rate by institutional investors. We can observe many

IPO cases during the IT booming in the early 2000s and a sharp decline in the following period.

Furthermore, the mean and median of issue sizes steadily increase while the bidding ratios

slowly decrease from year 2000 to 2007. This observation is also due to the IT booming when

many small IT-based venture firms went public.

[Table 1 (Trends of IPOs) about here]

Underwriters and IPO firms revise their offer prices after bookbuilding process is over.

6
The renewed version also carries information regarding the specific bid price of institutional investors
in some IPO cases, which will be delved into in a following independent study.
7
We use the term market demand information, subscription rates, and bidding ratios throughout the
article interchangeably.

11
‘Offer Revision’ 8 measures the percentage difference of the finalized offer price from the

midpoint of the filing offer range in the early prospectus following Hanley (1993) and Cornelli

and Goldreich (2001).

Offer Revision = (Offer price – midpoint of offer range) / midpoint of offer range (1)

We examine factors affecting offer revision and whether such factors are fully reflected in the

offer price revision or not. We test whether IPO firm specific characteristic, bookbuilding

information, market information and past initial returns of IPOs are reflected in offer price

revisions. We include information on underwriters (Carter and Manaster, 1990; Carter, Dark

and Singh, 1998) and venture capitals (Megginson and Weiss, 1990; Lee and Wahal, 2004) and

band width, percent band width which signals the lack of the commitment of underwriters and

issuing firms according to Kutsuna et al. (2009)

Offer revision =β0+ β1*ln(proceeds) + β2*ln(age) + β3*band width + β4*band width (%)+
β5*Bidding ratio + β6*UW fee percentage + β7*UW mkt share + β8*Number of VC + β9*ROA
+ β10*DtoA + β11*Market Dummy + β12*Pre-issue risk + β13*Pre-issue run-up + β14*Hot/Cold
+ εt (2)

In addition, we examine whether certain information is partially reflected in price revision

8
We use the term offer revision and price revision throughout the article interchangeably.

12
by examining its effects on initial returns. We measure the initial return through the percentage

difference of the stock price of the seventh trading day from the offer price.

Initial Returns = (Seventh trading day end price – offer price) / offer price

(3)

We employ such a long interval in measuring initial returns instead of the first day return in

consideration of a feature in the Korean stock market. Daily price changes are limited to within

12% or 15% of the previous day’s end price or the opening price for the first traded IPO firms. 9

The limits weaken the assumption that the closing price of the first trading day fully marks the

market evaluation. In fact, a significant portion of our IPO samples hits the ceiling for some

consecutive days after trading has begun. To ensure the robustness of our results, we

additionally use various intervals to measure initial returns and re-run the tests.

Table 2 shows the summary statistics for 612 IPOs that have all necessary information used

in the study. Mean initial return, denoted 7th-day-return is over 50%, briefly confirming severe

underpricing. Ln(proceeds) is the natural log of issue size scaled by billion won; Ln(age) is the

natural log of the firm age in months; Band width is the absolute difference between the high

and low endpoints of the price band of IPO; Band width (%) is Band width scaled by the

9
The KSE market has employed a 15% limit in price change since Dec 7 1998 and this limit prevails to
this date. KOSDAQ, on the other hand, has undergone more changes recently: the limit was 12% from
May 25 1998 to Mar 23 2005, and 15% from Mar 28 2005 to the current date of this study. More
information on the issue is available online at http://www.krx.co.kr.

13
midpoint of the band; Bidding ratio is the natural log of subscription rate; UW fee percentage

is log value of underwriter fee over proceeds; UW mkt share is the underwriter’s market share

of IPO proceeds for the past 6 months; Number of VCs is the number of VCs participating in

the firm at IPO; ROA is the ratio of return on assets; DtoA is the ratio of debt to assets; Pre-

issue period is the days between IPO registration and issuance; Pre-issue run-up is the average

rate of returns of the IPO firm’s matching group during the Pre-issue period; Pre-issue risk is

the standard deviation of Pre-issue run-up of the IPO firm’s matching group; Pre-trade period

is the days between issuance and first trade date; Pre-trade run-up is the average rate of returns

of the IPO firm’s matching group during the Pre-trade period; Pre-trade risk is the standard

deviation of Pre-trade run-up; Hot/Cold is the average initial return of IPO stocks for the past 6

months.

Panel B shows the simple summary statistics and the significance of mean differences of the

two subsets depending on whether the offer price was higher than the midpoint of the price

band or not. Unlike many market related variables, bidding ratio and some firm characteristic

are not significantly different across the two subsets. These results suggest that price revision

might reflect information other than publicly known bidding ratios and firm characteristics. In

unreported tables, we divide the sample into three subsets according to the level of offer price

compared to the maximum and minimum of the price band as in Loughran and Ritter (2002).

14
We also find similar results that market run-ups are statistically different across the subsets

while some firm specific variables are not.

[Table 2 (Summary Statistics) about here]

The variables we have collected might be correlated with each other. For example, Pre-issue

risk and Pre-trade risk are highly correlated with a Pearson and Spearman coefficients of 0.593

and 0.623, respectively. So in the following analyses, we use only Pre-issue risks. Table 3

presents the correlation matrix among variables.

[Table 3 (Correlation Matrix) about here]

5. Empirical Results

5.1 Price revision

Table 4 reports outcomes of the basic regression results on offer price revisions shown in

equation (1). Panel A shows the results based on variables of main interest only whereas Panel

B shows the results including other control variables and publicly known market information.

In Panel A, positive coefficients of proceeds size suggest that offer price is usually revised

upward for large IPOs. Negative coefficients of band width show that offer price is usually

revised downward for IPOs with large price bands. Adding information on underwriters and

venture capitals does not change the results.

In Panel B, we incorporate Hanley (1993) by including pure public information such as

15
market run-up (Pre-Issue run-up), initial returns of IPOs in the past 6 months (Hot/Cold), and

market risk (Pre-issue risk), along with characteristics of IPO stocks that are available from the

preliminary prospectus. Negative coefficients of Pre-issue risk show that offer price is revised

downward when there is a greater risk in stock returns of matched firms. Coefficients for Pre-

issue run-up are consistent with previous studies such as Edelen and Kadlec (2005). Positive

coefficients for Hot/Cold show that high initial returns of previous IPOs raise offer price.

Other results are similar in Panel A when we add publicly known information in models. As

before, positive coefficients of proceeds size suggest that offer price is usually revised upward

for large IPOs in Korea, yielding an opposite result of Edelen and Kadlec (2005) and Hanley

(1993). The risk of IPO stocks using proxy measures such as band width and percent band

width have negative coefficients as Kutsuna et al. (2009) argue.

Bidding ratio is positively correlated with price revision and highly significant. Including

bidding ratio in regression equations enhances explanatory power (R2) of the model. The

higher R2 indicates that underwriters and IPO firms reflect positive signal from institutional

investors’ demand and other known factors in the process. The results remain the same even

when we include publicly available market information.

[Table 4 (Price Revision) around here]

5.2 Initial return

16
 Table 5 summarizes the results of the basic regressions on initial returns which are measured

as the percentage change from the offer price to close price on the seventh trading day. Panel A

shows the results based on variables of main interest only whereas Panel B shows the results

including other control variables and publicly known market information.

In Panel A, the size of proceeds is negatively correlated with initial returns consistent with

results in previous studies (Hanley, 1993; Ritter, 1987). Large stocks tend to suffer less from

the information asymmetry issue, tend to yield smaller initial returns. IPO firms’ risk measured

through band width is not significant when bidding ratio is included. While price revision

lowers initial return in most cases, positive price revision increases initial return. Coefficients

of bidding ratio are positive, suggesting that IPO firms with high institutional investors’

demand show high initial returns.

Panel B shows that coefficients of market run-ups (run-ups during the time-periods between

filing and bookbuilding, and run-ups after bookbuilding and trading) are positive, raising the

initial returns. Hot/Cold retains a significantly positive relationship with initial returns. These

variables show that an independent relationship exists between the returns of IPO stocks even

though they were reflected in price revision shown in Table 4. These results confirm previous

studies of Hanley (1993) and Kutsuna et al. (2009) in the sense that market run-ups were ‘left

17
on the table.’ 10 Pre-issue risk is also positively correlated with initial returns while it affects

price revision negatively.

Results in Panel B are similar to those in Panel A, suggesting that including publicly known

information into models does not change main results. The size of proceeds yields negative

effects and bidding ratio yields positive effects on initial returns. Although information on

these variables is reflected in price revision, significant independent effects suggest that such

information is partially adjusted in the revision. Moreover, positive price revision yields

positive effects while price revision does not. This suggests that underwriters and IPO firms do

not fully incorporate positive signals into offer price, confirming asymmetric partial

adjustment of Kutsuna et al. (2009) that only the positive price revisions show positive

correlation.

We also conducted regressions across three subsets of IPO firms depending on whether price

revision exceeds or falls below the initial price range. Concurring with Loughran and Ritter

(2002) the results indicate that the larger part of the ‘money left on the table’ is from IPO firms

whose revision exceeds the initial price range. These results are not included in the paper due

to space limit, but available upon request.

10
Due to space limitations, we do not report the results when we divide market run-ups by specific
periods such as 40 to 20 day run-ups prior to IPO as done in previous literature. However, we confirm
past studies as well as our results aforementioned.

18
 [Table 5 (Initial Returns) around here]

5.3 Decomposition of price revision

We decompose actual price revision into two components: estimated price revision and

11
unpredicted price revision. We run a separate regression of price revision in equation (2) for

each IPO firm while using all IPO data except the firm itself and using the variables with

significance level higher than 10% only. From the regression results, we define the predicted

price revision as ‘disclosed information’ driven price revision (Disclosed_Info_Revision) and

the residual as ‘private information’ driven price revision (Private_Info_Revision). Therefore,

the Private_Info_Revision is unpredicted price revision which equals the difference between

the actual price revision and predicted price revision.

Table 6 summarizes the regression results using decomposed components of offer price

revisions. Panel A shows that Private_Info_Revision has positive but insignificant impact on

Initial Returns while Disclosed_Info_Revision has negative relation on Initial Returns when

controlled for both firm specific and industry/market information. Though the coefficients

slightly differ from those of Table 5, the same bookbuilding information variables show

significant and positive effect on initial returns.

11
We have recently become aware of another paper on IPO price revision by Ince (2008) which also
devotes a significant proportion to the decomposition of price revision. However instead of focusing on
the sensitivity analysis on each of the factors as in Ince (2008), we test for implications that these
decomposed components have on the initial returns.

19
 To further examine the impact of each proportion of price revision, we re-run the test with

two added variables. Positive_Private_Info_Revision takes the value of Private_Info_Revision

when positive and zero otherwise. Positive_Disclosed_Info_Revision takes the value of

Disclosed_Info_Revision when it is greater than average price revision, and zero otherwise.

There is little difference whether we use average price revision or zero revision as bench mark.

We report regression results when we divide Disclosed_Info_Revision based on the mean.

Panel B shows that revisions driven by private information affects Initial Returns differently

from those driven by disclosed information. Unlike Disclosed_Info_Revision which yields

inconsistent coefficients depending on control variables, Positive_Disclosed_Info_Revision

consistently yields negative effects on initial returns, lowering initial returns. These results

suggest that IPO firms and underwriters raise their offer price to reflect positive signal based

on disclosed information, thereby ex-post lowering initial returns. On the other hand,

coefficients of Positive_Private_Info_Revision are positive and significant while those of

Private_Info_Revision are not significant. These results imply that positive private information

is partially incorporated into offer price and negative private information is already fully

incorporated.

Such differences lie in the nature and source of private information. Examples of negative

private information can include levels and intensity of earnings management prior to IPO while

20
those of positive private information include quality of management team and corporate

culture. Even when the issuing firm and underwriters know more of positive information than

market participants, they are not able to credibly communicate with the investors. Therefore,

underwriters do not fully reflect positive information into offer price, and the market might not

fully learn such information in the short run.

In summary, Positive_Private_Info_Revision consistently yields positive significant impacts

on initial returns while Positive_Disclosed_info_Revision consistently yields negative

significant effects. These results indicate that for positive public information beyond the

conventional level, underwriters and IPO firms would reflect it fully into offer price. These

results indicate that private and public information yield opposite adjustment and that positive

and negative information yield asymmetric effect. In particular, positive private information is

a source of asymmetric partial price adjustment.

[Table 6 (Private Information) around here]

6. Robustness Tests

6.1 Intervals of initial return

As briefly discussed earlier, the Korean stock market limits daily price changes to a specific

multiple of the previous day end price. To test the robustness of short term (partial) adjustment

of information surrounding the IPO, we additionally use initial returns of one, two, 14 and 21

21
trading day intervals. The latter two are approximately 18 and 29 day initial returns in calendar

days, respectively. We do not look into a longer period in this study because circumstances

surrounding the IPO market change dramatically. For example, market making activities and

price supports by the underwriters are conventionally valid for one month after the public

offering. Also, the possibility of material corporate events increases as the interval grows,

forcing us to limit the short term interval to a certain time period.

Panel A in Table 7 confirms the presence of asymmetric partial adjustment when initial

returns are re-calculated. With short intervals (columns 1 and 2), the coefficients of positive

price revision show strong statistical significance, whereas coefficients for all revisions do not.

When initial returns are defined using longer intervals, coefficients for positive price revision

are positive and significant while all price revisions are negative and significant. These results

show that asymmetric partial adjustment is confirmed.

Panel B shows the result of newly defined initial returns on decomposition of price revisions.

A positive and significant coefficient on Positive_Private_Info_Revision shows partial

adjustment while a negative and significant coefficient on Positive_Disclosed_Info_Revision

shows opposite effects. Although the magnitudes of these coefficients tend to become smaller

as longer intervals are employed to define initial returns, their opposite signs suggest the

asymmetric role of private and public information in offer price revision.

22
 There can be two possible explanations for why price revision yields a long term effect.

One is that the limits in price changes have slowed the IPO stocks from reaching their market

price. The other one is that the market is under-reacting to positive information that was ‘left

on the table’, incorporating it through a certain period of time.

Additional measures of initial returns confirm the earlier results that positive initial returns

are related more to private information than disclosed one. Moreover, partial asymmetric

adjustment of positive information is consistent with that positive private information is

partially reflected in price revision and increases initial return while positive disclosed

information is aggressively reflected in price revision and lowers initial returns.

[Table 7 (Intervals of Initial Return) about here]

6.2 Number of shares issued

We examine whether partial and asymmetric adjustment of information is associated with

the number of shares issued. Since IPOs with small number of shares can suffer more from

information asymmetry due to the lack of public interest or liquidity problems once trading

begins, we test whether our results depend on the size of new shares offered. We divided the

sample into two equal-sized groups according to the number of new shares offered.

Table 8 shows overall results in each sub group are generally similar to the earlier results. A

positive and significant coefficient of bidding ratio of institutional investors indicates that it is

23
partially adjusted regardless of the number of newly issued stocks. Moreover, IPO stocks with

positive price revision show higher returns, suggesting partial adjustment of positive

information. Decomposition of price revisions shows more complicated results. Among IPOs

with a smaller number of newly issued stocks, Positive_Private_Info_Revision has a positive

significant coefficient, while both overall and positive Public_Info_Revision do not produce

significant coefficients. On the other hand, among IPOs with a larger number of newly issued

stocks, Positive_Public_Info_Revision has a negative significant coefficient, while both overall

and positive Private_Info_Revision do not produce significant coefficients.

These results suggest that partial adjustment of positive private information is found in

IPOs with fewer shares that might suffer from more serious information asymmetry. Positive

disclosed information is strongly reflected in IPOs with more shares that would suffer less

from information asymmetry. These results suggest that earlier results of asymmetric and

partial adjustment of information depend on the difficulty of conveying information, rather

than different levels of liquidity problems of new IPO stocks.

[Table 8 (Subsamples: Number of New Shares Offered) around here]

7. Summary and Conclusion

Frequently observed high initial returns indicate that offer prices are often set far below

24
what investors are willing to pay, even after the bookbuilding processes. This study empirically

tests what affects initial returns of IPO stocks, using a very unique hand-collected large data set

on IPO activities, including registration filing, bookbuilidng and offer price revision, for all

IPOs in Korea from April, 2000 to 2007. We focus on factors affecting offer price revisions. In

particular, we examine how information obtained during the bookbuilding process is reflected

in offer price revisions, which in turn determine the magnitude of initial returns.

While offer price revision reflects information from diverse sources such as market

conditions, bookbuilding activities, and IPO firm specific characteristics, underwriters and

issuing firms appear to leave out some information. We also find evidence that underwriters

reflect private and public information into offer price revisions differently. While positive

public information appears to be strongly reflected, positive private information is only

partially reflected. Partial adjustment of information, especially positive private information

contributes to high returns known as underpricing of IPOs, even when public information and

institutional market demands are controlled for. Asymmetric adjustment of private and public

information in price revisions seems to stem from the difficulty of conveying private

information.

Our paper sheds light on the importance of public information and bookbuilding activities in

determining offer price and eventually initial returns. In addition, the study finds the role of

25
underwriters’ private information in offer price revisions and IPO returns. Future study can

further examine whether institutional investors’ demand and underwriters’ private information

can explain the long term performance of IPO stocks.

26
References
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Quantitative Analysis 31, 25-42.

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Economy 81, 607-636.

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Tech.

Jenkinson, T., Jones, H., 2004. Bids and Allocations in European IPO Bookbuilding. Journal of Finance

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market prices. Journal of Financial Intermediation 14, 466-484.

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IPOs?, Review of Financial Studies 15, 413-443.

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3-26.

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1795-1828

29
Figure 1
IPO process in Korea
During the IPO process in Korea, information including filing range of the company going public is carried in the
Preliminary Prospectus, and is evolved into an offer price during about 3 to 4 Revised Versions of the Prospectus. The
average amount of time revision of Prospectus takes is 35.35 calendar days. Results of the ‘Demand Estimation
Survey,’ offer price, and other settled information are delivered in the Final Version of the Prospectus. After the final
version of the prospectus is submitted, underwriters accept subscriptions from individual investors, who are
essentially price takers from the underwriter’s point of view, and allocate shares to both individual and institutional
investors, accordingly. This process takes an average of 17.16 calendar days, and trading of the publicly offered share
usually starts on the next day.

Bookbuilding Activities Subscriptions,

(Road Show, Demand Estimation Survey) Allocations
Preliminary Final Revised
Prospectus Prospectus

First Trading day

Filing Range Offer Price
Close Price
Offer Revision

Mean= 35.35 Calendar Days Mean = 17.16 Calendar Days

30
Table 1
Trends of IPOs in Korea
Table 1 presents the trends of IPOs in Korea from April 2000 to December 2007 that have all information used in
the study. Issue size (bil) is the total amount of proceeds collected in the IPO process in billion won; Bidding Ratio is
the natural log value of the number of shares subscribed by institutional investors over total number of shares
allocated to them during the bookbuilding period; Pre-issue run-up is the average rate of returns of the IPO firm’s
matching group from registration to issuance; Offer Revision measures the percentage difference of the offer price
from the midpoint of the offer range; Initial returns (7th day) is percentage initial return to the offer price at the
market close of the seventh trading day

Issue Size (bil) Bidding Ratio Pre-issue run-up Offer Revision Initial Return (7th day)
Mean Mean Mean Mean Mean
Year N Std Dev Std Dev Std Dev Std Dev Std Dev
(Median) (Median) (Median) (Median) (Median)
6.504 6.52 -0.1 -0.317 0.961
2000 36 5.847 0.666 0.138 0.113 0.777
(5.086) (6.539) (-0.106) (-0.302) (0.897)
8.968 6.005 0.005 0.026 0.723
2001 156 10.356 0.72 0.148 0.148 0.776
(6.210) (6.071) (-0.009) (0.036) (0.504)
19.52 5.917 -0.033 -0.028 0.419
2002 108 73.194 0.873 0.142 0.143 0.588
(6.239) (6.052) (-0.042) (-0.018) (0.309)
14.644 5.42 -0.006 -0.038 0.709
2003 78 37.62 1.005 0.087 0.129 0.84
(6.281) (5.576) (-0.015) (-0.051) (0.420)
18.95 4.636 -0.022 -0.13 0.071
2004 47 43.976 0.926 0.091 0.119 0.306
(6.300) (4.814) (-0.017) (-0.119) (0.039)
17.367 4.311 0.106 0.004 0.678
2005 75 21.311 0.634 0.151 0.116 0.715
(12.923) (4.339) (0.112) (0.022) (0.415)
27.959 4.255 -0.002 -0.057 0.281
2006 59 91.337 0.647 0.091 0.106 0.649
(9.002) (4.427) (-0.005) (-0.046) (0.065)
18.933 3.776 0.003 -0.022 0.246
2007 53 15.198 1.02 0.081 0.159 0.695
(13.000) (4.066) (-0.010) (0.023) (0.015)
15.898 5.271 0 -0.039 0.542
2000 - 2007 612 46.837 1.184 0.134 0.156 0.738
(7.268) (5.441) (-0.004) (-0.027) (0.329)

31
Table 2
Summary Statistics
Panel A shows simple statistics of the main variables in the full data set. Panel B shows bivariate tests of differences between two
subsamples: 369 firms with down revision, and 249 firms with upward revision. Ln(proceeds) is the natural log of issue size; Ln(age) is
the natural log of the firm age in months, Band width is the absolute difference between the high and low endpoints of the price band;
Band width (%) is Band width scaled by the midpoint of the band; Bidding ratio is the natural log of subscription rate; UW fee
percentage is log of underwriter fee over proceeds; UW mkt share is the underwriter’s market share of IPO proceeds for the past 6
months; Number of VCs is the number of venture capitalists participating in the firm at IPO; ROA is the ratio of return on assets; DtoA
is the ratio of debt to assets; Pre-issue period is the days between IPO registration and issuance; Pre-trade period is the days between
issuance and first trade date; Pre-issue (Pre-trade) run-up is the average rate of returns of the IPO firm’s matching group during the Pre-
issue (Pre-trade) period; Pre-issue (Pre-trade) risk is the standard deviation of matching groups’ rate of returns during the Pre-issue
(Pre-trade) period; price revision is (offer price-band midpoint)/band midpoint; Initial returns (7th day) is percentage initial return to the
offer price at the market close of the seventh trading day. Hot/Cold is the average initial return of IPO stocks for the past 6 months

Panel A (All samples) Panel B ( Direction of price revision)

(N = 612) (N = 363 Downward, 249 Upward)
Downward Upward
Variable Min Max Mean Std_Dev Mean (A) Std_Dev Mean (B) Std_Dev Diff (A-B) t-Value
Ln(proceeds) 0.084 6.53 2.121 0.9 1.989 0.888 2.314 0.883 -0.325 -4.466
Ln(age) 2.639 6.423 4.576 0.662 4.605 0.664 4.534 0.659 0.071 1.298
Band width 0.2 90 2.105 4.23 1.954 2.115 2.326 6.122 -0.372 -0.921
Band width (%) 0.049 0.595 0.246 0.082 0.246 0.082 0.245 0.082 0.001 0.076
Bidding Ratio 0.392 8.024 5.271 1.184 5.312 1.241 5.211 1.096 0.101 1.064
UW fee percentage 1.061 19.634 5.434 2.63 5.806 3.017 4.891 1.802 0.916 4.690
UW mkt share 0.001 0.677 0.079 0.095 0.071 0.085 0.089 0.107 -0.018 -2.216
Number of VCs 0 10 1.763 2.103 1.669 2.04 1.9 2.189 -0.230 -1.313
ROA -0.54 0.414 0.077 0.092 0.076 0.078 0.079 0.109 -0.002 -0.271
DtoA 0.027 0.989 0.32 0.172 0.336 0.177 0.298 0.162 0.037 2.702
Pre-issue period 18 202 35.404 13.697 37.245 16.155 32.719 8.311 4.526 4.535
Pre-issue risk 0.016 0.08 0.042 0.01 0.044 0.011 0.041 0.008 0.003 3.244
Pre-issue run-up -0.507 0.781 0 0.134 -0.018 0.134 0.026 0.13 -0.044 -4.029
Price revision -0.638 0.491 -0.039 0.156 -0.137 0.117 0.104 0.076 -0.241 -30.791
Pre-trade period 4 44 16.992 6.729 16.452 6.468 17.779 7.031 -1.327 -2.369
Pre-trade run-up -0.466 0.407 -0.005 0.096 0.001 0.097 -0.014 0.093 0.015 1.959
Pre-trade risk 0.012 0.098 0.042 0.012 0.042 0.014 0.041 0.01 0.001 0.751
Initial returns (7th day) -0.444 3.382 0.542 0.738 0.479 0.726 0.634 0.748 -0.155 -2.554
Hot/Cold -0.027 1.361 0.57 0.307 0.485 0.308 0.695 0.26 -0.210 -9.085

32
Table 3
Correlation Matrix
Table 3 presents the correlation matrix of important variables used in the study. Definitions of variables are identical to that in the text. Pearson correlation coefficients are
presented in the lower triangular part of the matrix and Spearman rank-order correlation coefficients in the upper part. Numbers in parenthesis indicate two-sided significance levels.

Band Bidding Pre-issue Pre-issue Pre-issue Price Pre-trade Pre-trade Pre-trade Initial returns
Variable
width (%) Ratio period risk run-up revision period run-up risk (7th day)
Band 1 0.372 0.107 0.167 -0.113 -0.034 0.232 -0.026 0.12 0.101
width (%) (0) (0.008) (0) (0.005) (0.406) (0) (0.523) (0.003) (0.012)
Bidding 0.324 1 0.196 0.308 -0.179 -0.067 0.559 -0.061 0.289 0.243
Ratio (0) (0) (0) (0) (0.097) (0) (0.132) (0) (0)
Pre-issue 0.07 0.177 1 0.139 -0.091 -0.166 0.003 0.043 0.04 0.025
period (0.082) (0) (0.001) (0.024) (0) (0.932) (0.291) (0.324) (0.531)
Pre-issue 0.167 0.281 0.112 1 -0.229 -0.173 0.274 -0.008 0.563 0.182
risk (0) (0) (0.006) (0) (0) (0) (0.835) (0) (0)
Pre-issue -0.122 -0.116 -0.085 -0.187 1 0.218 -0.146 0.007 -0.124 0.141
run-up (0.003) (0.004) (0.036) (0) (0) (0) (0.861) (0.002) (0)
Price -0.06 -0.065 -0.14 -0.247 0.19 1 0.102 -0.05 -0.04 0.138
revision (0.14) (0.109) (0.001) (0) (0) (0.011) (0.214) (0.327) (0.001)
Pre-trade 0.217 0.546 0.006 0.272 -0.127 0.081 1 -0.08 0.416 0.178
period (0) (0) (0.881) (0) (0.002) (0.045) (0.047) (0) (0)
Pre-trade -0.016 -0.07 0.032 -0.016 -0.017 -0.077 -0.123 1 -0.071 0.273
run-up (0.693) (0.085) (0.431) (0.697) (0.675) (0.056) (0.002) (0.079) (0)
Pre-trade 0.104 0.266 -0.001 0.517 -0.141 -0.169 0.406 -0.138 1 0.176
risk (0.01) (0) (0.973) (0) (0) (0) (0) (0.001) (0)
Initial returns 0.117 0.22 0.03 0.17 0.121 0.066 0.138 0.252 0.191 1
(7th day) (0.004) (0) (0.462) (0) (0.003) (0.102) (0.001) (0) (0)

33
Table 4
Determinants of Price Revision
Table 4 presents the results of the regressions with price revision as the dependent variable. Price revision is measured as (final offer price-band midpoint)/band midpoint. Panel A
includes variables of main interest whereas Panel B includes IPO market related information, along with other control variables. Model (1) includes only public information; Model (2)
includes information of the underwriter and venture capitalist in addition to the variables in Model (1); Model (3) includes price band information in the preliminary prospectus in addition
to those in Model (2); Model (4) includes average subscription information revealed during bookbuilding in addition to those in Model (3). Other variables are as defined in Table 2.
Underwriter, VC info refers to UW fee percentage, UW mkt share, and Number of VCs; further control variables are Debt-to-Asset ratio, ROA, and exchange market dummy. *, **, ***
represent a significance level at 10%, 5% and 1%, respectively.
Panel A Panel B
Variable Model (1) Model (2) Model (3) Model (4) Model (1) Model (2) Model (3) Model (4)
-0.037 -0.198 *** -0.228 *** -0.524 *** -0.038 -0.195 ** -0.219 *** -0.441 ***
Intercept
(0.046) (0.072) (0.075) (0.099) (0.06) (0.077) (0.079) (0.094)
0.039 *** 0.062 *** 0.074 *** 0.115 *** 0.038 *** 0.061 *** 0.069 *** 0.104 ***
Ln(proceeds)
(0.007) (0.011) (0.012) (0.015) (0.007) (0.01) (0.011) (0.014)
-0.019 ** -0.016 -0.014 -0.011 -0.013 -0.01 -0.009 -0.008
Ln(age)
(0.009) (0.01) (0.01) (0.01) (0.008) (0.009) (0.009) (0.009)
-0.006 *** -0.006 *** -0.003 ** -0.004 **
Band width
(0.002) (0.002) (0.001) (0.001)
-0.03 -0.126 -0.068 -0.132 *
Band width (%)
(0.079) (0.081) (0.071) (0.071)
0.039 *** 0.036 ***
Bidding Ratio
(0.009) (0.008)
-3.941 *** -3.847 *** -3.599 *** -4.183 ***
Pre-issue risk
(0.556) (0.555) (0.561) (0.571)
0.138 *** 0.141 *** 0.135 *** 0.148 ***
Pre-issue run-up
(0.041) (0.041) (0.041) (0.041)
0.197 *** 0.203 *** 0.206 *** 0.181 ***
Hot/Cold
(0.018) (0.018) (0.018) (0.019)
Underwriter, VC information No Yes Yes Yes No Yes Yes Yes
Debt-to-Asset, ROA, exchange market dummy No No No No Yes Yes Yes Yes
N 632 632 632 632 612 612 612 612
Adj R-Sq 0.051 0.06 0.075 0.102 0.268 0.278 0.284 0.304

34
Table 5
Determinants of Initial Returns
Table 5 presents the results of the regressions with the initial return as the dependent variable. Panel A includes variables of main interest whereas Panel B includes IPO market related
information, along with other control variables. Underwriter, VC info refers to UW fee percentage, UW mkt share, and Number of VCs; further control variables are Debt-to-Asset ratio,
ROA, and exchange market dummy. Numbers in parenthesis indicate standard errors. *, **, *** represent a significance level at 10%, 5% and 1%, respectively.
Panel A Panel B
Variable Model (1) Model (2) Model (3) Model (4) Model (1) Model (2) Model (3) Model (4)
0.904 *** 1.197 *** 0.808 ** -0.343 -0.045 -0.044 -0.135 -0.916 *
Intercept
(0.218) (0.345) (0.36) (0.486) (0.314) (0.399) (0.404) (0.486)
-0.142 *** -0.186 *** -0.182 *** -0.017 -0.126 *** -0.12 ** -0.136 ** -0.008
Ln(proceeds)
(0.033) (0.054) (0.058) (0.074) (0.035) (0.053) (0.057) (0.072)
-0.011 -0.024 -0.006 0.001 -0.001 -0.006 0.003 0.005
Ln(age)
(0.045) (0.047) (0.046) (0.046) (0.043) (0.045) (0.044) (0.044)
0.003 -0 -0.003 -0.005
Band width
(0.008) (0.008) (0.007) (0.007)
0.636 * 0.28 0.536 0.297
Band width (%)
(0.381) (0.391) (0.36) (0.368)
0.149 *** 0.125 ***
Bidding Ratio
(0.043) (0.044)
-0.783 *** -0.865 *** -0.42 -0.554 *
Price revision
(0.292) (0.29) (0.305) (0.307)
3.054 *** 2.954 *** 2.686 *** 2.774 ***
Positive price revision
(0.646) (0.641) (0.624) (0.621)
13.126 *** 12.998 *** 13.183 *** 10.708 ***
Pre-issue risk
(2.817) (2.839) (2.943) (3.051)
0.817 *** 0.817 *** 0.874 *** 0.939 ***
Pre-issue run-up
(0.209) (0.21) (0.21) (0.21)
1.974 *** 1.974 *** 2.171 *** 2.254 ***
Pre-trade run-up
(0.287) (0.288) (0.285) (0.285)
0.404 *** 0.402 *** 0.239 ** 0.171
Hot/Cold
(0.092) (0.092) (0.101) (0.104)
Underwriter, VC information No Yes Yes Yes No Yes Yes Yes
Debt-to-Asset, ROA, exchange market dummy No No No No Yes Yes Yes Yes
N 632 632 632 632 612 612 612 612
Adj R-Sq 0.026 0.024 0.066 0.083 0.159 0.155 0.189 0.199

35
Table 6
Initial Returns and Price Revision Driven by Private or Disclosed Information
Table 6 presents the results of the regressions with the initial return as the dependent variable, including the decomposed revision components. Disclosed info driven price revision
(Disclosed_Info_Revision) is the estimated value of price revision while Private info driven price revision (Private_Info_Revision) is the difference between actual price revision and
predicted price revision from the following OLS model. Offer revision = β0+ β1*ln(proceeds) + β2*ln(age) + β3*band width + β4*band width (%)+ β5*Bidding ratio + β6*UW fee
percentage + β7*UW mkt share + β8*Number of VC + β9*ROA + β10*DtoA + β11*Market Dummy + β12*pre-issue risk + β13*pre-issue run-up + β14*Hot/Cold + εt.
Panel B includes a positive component of each revision. Firm specific information refers to Debt-to-Asset ratio, ROA, log proceeds, UW fee percentage, UW mkt share, and Number of
VCs; market and industry factors refer to exchange market dummy, Pre-issue run-up, preissue risk, pre-trade run-up. Other variables are as defined in Table 2. Numbers in parenthesis
indicate standard errors. *, **, *** represent a significance level at 10%, 5% and 1%, respectively.

Panel A Panel B
Variable Model (1) Model (2) Model (3) Model (4) Model (1) Model (2) Model (3) Model (4)
-0.274 * -0.077 -0.729 *** -3.345 *** -0.683 *** -0.454 -1.132 *** -4.462 ***
Intercept
(0.15) (0.523) (0.181) (0.77) (0.245) (0.534) (0.249) (0.875)
0.302 0.336 0.451 ** 0.264 -0.561 * -0.548 -0.271 -0.237
Private_Info_Revision
(0.213) (0.217) (0.199) (0.208) (0.338) (0.34) (0.314) (0.311)
2.65 *** 2.801 *** 2.306 *** 1.923 ***
Positive_Private_Info_Revision
(0.686) (0.691) (0.65) (0.657)
0.619 * 0.756 * -0.217 -4.687 *** 2.138 *** 2.551 *** 1.45 * -2.728 **
Disclosed_Info_Revision
(0.322) (0.396) (0.528) (1.349) (0.816) (0.917) (0.814) (1.388)
-1.922 * -2.29 ** -2.028 ** -3.941 ***
Positive_Disclosed_Info_Revision
(1.003) (1.102) (0.946) (1.115)
0.002 0.003 -0.008 -0.059 *** 0.004 0.006 -0.003 -0.051 ***
Band width
(0.008) (0.009) (0.008) (0.016) (0.011) (0.013) (0.01) (0.016)
0.492 0.633 0.761 ** 0.504 0.398 0.571 0.716 ** 0.529
Band width (%)
(0.384) (0.392) (0.355) (0.368) (0.383) (0.392) (0.354) (0.362)
0.133 *** 0.132 *** 0.094 *** 0.293 *** 0.169 *** 0.181 *** 0.139 *** 0.433 ***
Bidding ratio
(0.028) (0.046) (0.029) (0.063) (0.035) (0.052) (0.034) (0.078)
Inclusion of firm specific info No Yes No Yes No Yes No Yes
Inclusion of industry and market info No No Yes Yes No No Yes Yes
N 612 612 612 612 612 612 612 612
Adj R-Sq 0.051 0.054 0.202 0.219 0.076 0.083 0.223 0.246

36
Table 7
Intervals of Initial Return
Table 7 presents the results of the regressions with the initial return as the dependent variable, employing different intervals to calculate initial returns. All models are controlled for
firm specific and industry/market specific information. Other variables are as defined in Table 2 and Table 6. Firm specific information refers to Debt-to-Asset ratio, ROA, log
proceeds, UW fee percentage, UW mkt share, and Number of VCs; market and industry factors refer to exchange market dummy, Pre-issue run-up, preissue risk, pre-trade run-up.
Numbers in parenthesis indicate standard errors. *, **, *** represent a significance level at 10%, 5% and 1%, respectively.

Panel A Panel B
Variable 1 Day 2 Day 14 Day 21 Day 1 Day 2 Day 14 Day 21 Day
0.13 -0.157 -1.411 *** -1.884 *** -3.011 *** -4.482 *** -4.151 *** -3.628 ***
Intercept
(0.298) (0.342) (0.476) (0.452) (0.945) (0.886) (0.759) (0.625)
0.226 0.195 -0.498 * -0.752 ***
Price revision
(0.194) (0.22) (0.296) (0.278)
0.685 * 0.942 ** 2.261 *** 2.273 ***
Positive price revision
(0.38) (0.437) (0.609) (0.578)
0.001 0.209 -0.135 -0.224
Private_Info_Revision
(0.192) (0.22) (0.312) (0.301)
1.339 *** 1.166 ** 1.372 ** 1.217 *
Positive_Private_Info_Revision
(0.392) (0.452) (0.658) (0.627)
1.067 ** 0.475 -2.933 ** -1.713
Disclosed_Info_Revision
(0.535) (0.649) (1.337) (1.17)
-6.352 *** -8.567 *** -2.719 *** -2.074 **
Positive_Disclosed_Info_Revision
(1.734) (1.569) (1.052) (0.993)
-0.002 -0.004 -0.006 -0.008 -0.003 -0.012 -0.049 *** -0.036 **
Band width
(0.004) (0.005) (0.007) (0.007) (0.007) (0.008) (0.015) (0.014)
0.227 0.305 0.465 0.1 0.252 0.28 0.428 0.18
Band width (%)
(0.225) (0.259) (0.362) (0.345) (0.22) (0.252) (0.362) (0.346)
0.052 ** 0.076 ** 0.127 *** 0.173 *** 0.384 *** 0.517 *** 0.372 *** 0.34 ***
Bidding Ratio
(0.026) (0.03) (0.043) (0.041) (0.097) (0.087) (0.067) (0.058)
Inclusion of firm specific info Yes Yes Yes Yes Yes Yes Yes Yes
Inclusion of industry and market info Yes Yes Yes Yes Yes Yes Yes Yes
N 612 612 612 612 612 612 612 612
Adj R-Sq 0.2 0.215 0.226 0.283 0.228 0.258 0.246 0.291

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Table 8
Subsamples: Number of New Shares Offered
Table 8 presents regression results of initial returns as the dependent variable while the sample is divided into two equal-sized subsamples according to the number of new shares
offered. Panel A redoes the test shown in Table 4; Panel B redoes Table 5; and Panel C redoes Table 6 Panel B. All models are controlled for firm specific and industry/market specific
information. Other variables are as defined in Table 2 and Table 6. Firm specific information refers to Debt-to-Asset ratio, ROA, log proceeds, UW fee percentage, UW mkt share,
and Number of VCs; market and industry factors refer to exchange market dummy, Pre-issue run-up, Pre-issue risk, pre-trade run-up. Numbers in parenthesis indicate standard errors.
*, **, *** represent a significance level at 10%, 5% and 1%, respectively.
Panel A Panel B Panel C
Variable Few Many Few Many Few Many
-0.585 *** -0.41 *** -1.323 * -0.369 -4.452 *** -5.011 ***
Intercept
(0.137) (0.137) (0.706) (0.725) (1.359) (1.361)
0.044 *** 0.036 *** 0.207 *** 0.021 0.482 *** 0.409 ***
Bidding Ratio
(0.011) (0.013) (0.057) (0.068) (0.115) (0.118)
-0.825 ** -0.275
Price revision
(0.399) (0.476)
3.793 *** 1.982 **
Positive price revision
(0.821) (0.94)
-0.932 ** 0.537
Private_Info_Revision
(0.446) (0.462)
4.197 *** -0.167
Positive_Private_Info_Revision
(0.932) (0.975)
-4.247 -4.998 **
Disclosed_Info_Revision
(2.954) (2.164)
-2.47 -3.809 **
Positive_Disclosed_Info_Revision
(1.702) (1.682)
-0.023 *** -0.001 -0.004 -0.003 -0.025 -0.07 ***
Band width
(0.004) (0.002) (0.023) (0.008) (0.024) (0.026)
-0.066 -0.061 0.36 0.364 -0.034 0.412
Band width (%)
(0.109) (0.096) (0.556) (0.504) (0.654) (0.496)
Inclusion of firm specific info Yes Yes Yes Yes Yes Yes
Inclusion of industry and market info Yes Yes Yes Yes Yes Yes
N 306 306 306 306 306 306
Adj R-Sq 0.416 0.249 0.304 0.153 0.329 0.18

38