An Empirical Investigation of Initial Public Offerings (IPOs) Short Term Underpricing in the Jordanian Stock Market

Abstract

This research is an empirical investigation of Jordanian initial public offerings (IPOs) to provide evidence of short term underpricing of 53 firms that went public over the period from 1999 to 2008. Overall, the reported results are consistent with the overwhelming evidence found by most of the previous studies regarding the underpricing of IPOs; especially those conducted in emerging markets. This investigation of abnormal returns reveals significant first day under pricing in this market. A cross-sectional analysis is employed and it is found that Jordanian IPOs short term under pricing is primarily explained by the offer size which is used as a proxy of uncertainty. The results also show that insiders (government or founders) send signals on the quality of their issuances by the fraction of retained shares, which influence positively the under pricing level. In addition, institutional features hypotheses (prior market conditions and time gap) appear to have high explanatory power in explaining short term performance. Still, other factors such as reputation of issuance manager, firm's age and number of Seasoned Equity Offerings (SEOs), have no impact on explaining the level of underpricing.