Graduation Year
2018
Date of Submission
12-2017
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Lisa Meulbroek
Terms of Use & License Information
Rights Information
© 2017 Bhavika Booragadda
OCLC Record Number
1097201294
Abstract
This paper empirically tests the theoretical model developed by Aggarwal, Krigman and Womack (2001), which argues that insiders of a firm strategically underprice its initial public offering to maximize personal wealth by selling shares at lockup expiration. First day underpricing generates information momentum for the stock in terms of increased research coverage and recommendations by analysts. Increased research coverage is positively correlated with stock returns and insider selling at the end of the lockup period. Although the value of the stock should be typically based on discounted expected future cash flows, several empirical papers suggest a downward sloping demand curves for new issues (Kaul, Mehrotra and Morck 2000, Field and Hanka 2000), consistent with the assumption of this paper’s empirical model. The hypothesis is tested using a sample of 210 internet-based firms such as Social media platforms, online travel agents, online real-estate agents and E-commerce services. The empirical results are significant and consistent with the hypothesis.
Recommended Citation
Booragadda, Bhavika, "IPO Underpricing and Insider Wealth Maximization in Internet firms" (2018). CMC Senior Theses. 1818.
https://scholarship.claremont.edu/cmc_theses/1818
