With one of the Big Four firms, IPOs will have less underpricing compared to those that do not.
An IPO with multiple underwriters is significantly less expensive than one-off IPOs.
The smaller the distance between prospectus issuance date and date of prospectus, then the greater the risk of underpricing.
In order to test our hypotheses better, we’ll remove the ln variable (book value), which was part of the model that we created in week 6. The dependent and explicative variables can have multiple relationships. Our research into IPO pricing has shown us that the book value is in fact the problematic price. Endogenous book value (both the first day as well as ln) are both included. Therefore, we use ln (book price) to create a discriminating, inconsistent model. Most of our results can be compared to logit and ordinary regression. The dataset was mostly used in week 7. The variables in week 7 were the most used. We also added yearly sales to this variable, which represents the total asset percentage. In week 1, this variable will be offered to you as an agency for cost measurement. An increase in capital efficiency leads to lower agency costs. Our model shows an inverted relationship between the IPO date (and the return date), which is surprising. This means that joint ventures reduce underpricing in some cases. It could be because the insurance companies of one another are closely monitored. Our variables should be classified according to their rating and repute. This will allow us to assess whether joint ventures between lead companies have the same effect. Habib and Ljungqvist 2001 note that lead contractors are underpriced. We need to run a 2-stage model that includes a variable for the lead underwriters. This model could also have a scale.
The theory of asymmetric information states that the investors are always more informed than the issuer. A lemon issue can cause investors concern. An audited set of financial statements must be filed by a company that plans to go public. Auditors are third parties whose job it is to give credibility to initial public offer (IPO) operations. Rock also found that underpricing was caused by knowledge asymmetry among educated and uninformed external investors. The greater the informational dispersion among these investors, the greater the average undervaluation (Michaely & Shaw, 1995, p16). The gap can be closed by an auditing firm that is more trustworthy and reliable, leading to fewer initial public offerings at a lower price. Our Big 4 dummy predicts a negative relationship with the first-day returns. When adding variables as dummy variables in a regression model, it is important to avoid perfect collinearity. When a model contains dummy variable for every possible outcome and a constant, it is called collinearity. We divided the auditing firms into four categories based on these statistics: Big 4, Non-Big 4 and Not Accessible. Therefore, we will not include the second and third dummy variables in our model. A pairwise correlation analysis however shows strong associations between the Big 4 and non-Big 4 companies dummies. An IPO firm that doesn’t choose from the Big Four accounting firms will automatically select a non Big Four accountant firm. In addition to this, the auditor variable was not affected significantly by the absence of auditing information. We would eliminate the Non-Big Four company from our model to correct this problem of multicollinearity.
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