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

Research output: Book/ReportReportProfessional

Abstract

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 Marché 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. Keywords: IPOs, underpricing, venture capital, high technology, European New Markets, lock-up agreements JEL Codes: G14, G24
Original languageEnglish
Place of PublicationBrussels
PublisherECGI
Publication statusPublished - 2006

Publication series

NameECGI Working Paper
No.122/2006

Fingerprint

New markets
Underpricing
Venture capital
Germany
France
Partial adjustment
Ownership
Institutional investors
IPO underpricing
Venture capital financing
Substitute
Key words
Underwriters
Stock exchange
Riskiness
Insider
High technology

Cite this

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. (ECGI Working Paper; No. 122/2006). Brussels: ECGI.
Goergen, M. ; Khurshed, A. ; Renneboog, L.D.R. / Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets. Brussels : ECGI, 2006. (ECGI Working Paper; 122/2006).
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Goergen, M, Khurshed, A & Renneboog, LDR 2006, Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets. ECGI Working Paper, no. 122/2006, ECGI, Brussels.

Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets. / Goergen, M.; Khurshed, A.; Renneboog, L.D.R.

Brussels : ECGI, 2006. (ECGI Working Paper; No. 122/2006).

Research output: Book/ReportReportProfessional

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Goergen M, Khurshed A, Renneboog LDR. Why are the French so Different from the Germans? Underpricing of IPOs on the Euro New Markets. Brussels: ECGI, 2006. (ECGI Working Paper; 122/2006).