The Effect of the Trading System on the Underpricing of Initial Public Offerings

Several studies have documented significant average underpricing for initial public offerings (IPOs) of common stock on the NASDAQ system - that is, the closing price on the first day of trading is significantly higher on average than the offer price. In our paper, we examine whether IPOs on the exchanges (NYSE and AMEX) display similar underpricing. In addition, we test whether differences in the initial and continued listing standards imposed by the exchanges and NASDAQ impact the level of underpricing of IPOs.