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ABSTRACT
The main goal of this study is to analyze a sample of self-underwritten Initial Public Offerings (IPOs) where the going public process is conducted without the participation of any investment bank or underwriter at all. We test the hypothesis that the major incentive to self-underwrite is to maximize the proceeds from the IPO.The firms in this study are considered self-underwritten if and only if they explicitly describe their own IPO as such in the registration statement and the prospectus. This definition is completely new, since most previous academic papers have considered self-underwritten IPOs as those where the issuer is an investment bank that also participates in its own IPO.
The main conclusion of this study is that there are no significant differences on the level of underpricing between self-underwritten IPOs and conventional IPOs underwritten by independent underwriters. Similarly, no significant differences exist between the long-run performance of self-underwritten IPOs and their control sample of conventional IPOs. The same is true regarding to the risk measured as the standard deviation of daily stock returns. Self-underwritten IPOs of penny stocks have high levels of underpricing, long-run performance, and standard deviation of daily stock returns which are significant at conventional levels of confidence.
INTRODUCTION
Google's IPO was originally designed based on a Dutch-auction process that would allow any kind of investors, from retail investors to institutional ones, to bid on shares of the Google's stock. This singular process to determine the offer price has been used before by local firms with local underwriters, but their size and scale have barely attracted institutional investors. The original idea of Google was to democratize the IPO system. However, the entire IPO ended with a small group of institutional investors representing the Wall Street establishment, distributing about 77 percent of the Google shares. This was exactly the final outcome that Google wanted to avoid.
Google's IPO experience has raised again some questions related to the underpricing and the longterm performance of IPOs. Is the IPO underpricing an indirect cost that the issuer cannot avoid? What kind of conflict of interests exists between the issuer and the underwriter? Can these conflicts be avoided? Are selfunderwritten IPOs like the Google's original idea the best solution to underpricing? This paper tries to...