An examination factors influencing under-pricing of IPOs on the London Stock Exchange

Abstract

The mispricing of IPOs has been widely examined in studies. According most research findings, IPOs on average, are under priced in the short-run and correctly priced in the long-run. The purpose of this paper is to prove how the underpricing of IPOs on the London Stock Exchange is affected by issue size, firm age, systematic risk, underwriter reputation, P/E ratio, debt ratio, and ROA. Research has found the degree of underpricing on the London Stock Exchange market is 6.89744%. The result of this research reveals that issue size, systematic risk, and debt ratio influence the underpricing of IPOs. The large volume of issue size usually contributes to a lower degree of underpricing. The systematic risk and debt ratio result to a higher degree of underpricing. Thus, there exists a positive relationship between IPOs and systematic risk & debt ratio. Actually, because of the limitation of this research, the test result may not be accurately for IPOs forecast on the London Stock Exchange.