Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets

M. Goergen, A. Khurshed, L.D.R. Renneboog

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Abstract

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms listed on the two largest EuroNM stock exchanges, the Neuer Markt of Germany and the Nouveau Marche of France.We find that the high underpricing in these two markets contrary to the evidence on the US - is not driven by insiders selling behaviour.However, the large underpricing is caused by the high degree of riskiness of the issuing firms and by the partial adjustment phenomenon of offer prices to compensate institutional investors for the truthful revelation of their demand for the shares.In contrast, venture-capital involvement does not affect underpricing.For France, lock-up agreements act as substitutes to underpricing, but not so for Germany.We also explore the reasons for the large difference in underpricing between the German and the French IPOs: German firms are more underpriced because they are more risky, have larger price revisions, have less stringent VC lock-up contracts and mostly go public during the hot issue period of 1999-2000 when the general level of underpricing in all IPO markets is substantially higher.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages36
Volume2006-24
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper
Volume2006-24

Keywords

  • IPOs
  • underpricing
  • venture capital
  • high technology
  • European new markets
  • lock-up agreements

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    Goergen, M., Khurshed, A., & Renneboog, L. D. R. (2006). Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets. (CentER Discussion Paper; Vol. 2006-24). Finance.