The Impact of Lead Underwriters on Underpricing for European IPOs

Abstract

The primary objective of this paper is to analyze if the increased number of average underwriters per IPO influences the level of underpricing for European IPOs. The level of underpricing determines the allocation of capital in an economy and therefore impacts the economic growth of a country. Consequently, policymakers and companies are interested in finding determinants of underpricing. This study performed an Ordinary Least Square (OLS) regression model to find a negative relationship between the average number of underwriters and the level of underpricing per IPO using a dataset of 539 European IPOs between 2010 and 2021. This negative correlation is primarily explained by an increase in the deal value of IPOs. The results are in line with previous work of Hu & Ritter (2007) and Jeon et al. (2015). The negative correlation implies that the expected profits of underwriters will decrease when it accepts to share a joint lead underwriting position.