MEASURING THE COSTS OF IPO UNDERPRICING THE ISSUER'S VIEW

Abstract

Previous studies of initial public offer (IPO) underpricing on the KLSE concentrate on the difference between the offer price to the public and the market price once trading begins. This is a reasonable measure of underpricing for new investors, but it is not the appropriate measure of underpricing for issuers. This paper presents revised measures of IPO underpricing for use by issuers. They reveal that (1) underpricing measure of rom the issuer's viewpoint is greater than previously reported, (2) the cost of underpricing IPOs by companies about to be listed on the KLSE are quite high , and (3) there is thus more room than previously believed for improvement in the accuracy of pricing new share issues.