This study investigates a sample of self-underwritten IPOs - a new pricing and distribution mechanism for firms going public through an initial public offering that attracted 41 firms over 1996 to 2000. We focus our analysis on three important issues: initial underpricing, stock market performance over the first three months of trading, and market liquidity of self-underwritten IPOs as compared with the traditional investment banker-underwritten IPOs during the same period. Our main findings are as follows. First, self-underwritten IPOs are underpriced significantly less than the investment banker-underwritten (conventional) IPOs, despite the formers’ smaller market capitalization and smaller offer size. Second, over the following 59 days of trading we find little difference in the mean and median stock returns between the self-underwritten and conventional IPOs. Finally, self-underwritten IPOs suffer from significantly higher bid-ask spread, lower trading frequency, lower trading volume and higher adverse selection component of the spread.
Varshney, Sanjay B.; Zhou, Dan; and Lin, Hao, "Self-Underwritten IPOs: An Analysis of Underpricing and Market Liquidity" (2008). ICEB 2008 Proceedings. 27.