IPO Underpricing in Italy

This article analyses the first-day return of 182 IPOs listed on the Italian Stock Exchange from 1985 to 2001. It finds a significantly mean positive underpricing (21.87%). Contrary to the evidence detected in the USA by Loughran and Ritter and Ljungqvist and Wilhelm, it highlights that on the main board of the Italian Exchange IPO underpricing decreased in the late 1990s. It claims that such a pattern can be accounted for by two determinants: (i) the evolution of pricing strategies, from fixed-price IPOs to bookbuilding, (ii) the segmentation of the Italian Exchange with the birth of a new board for high-growth and technology firms (Nuovo Mercato). It shows that IPOs are intentionally underpriced: both public and private information available at the IPO is only partially incorporated in pricing the shares. The results suggest that negative feedback learned during the preselling is more fully incorporated into the offer price than positive information. Finally, it shows that price revisions are partially predictable on the basis of public information at the time of the offering