Table 162

Number of Offerings, Average First-Day Return, and Gross Proceeds of Initial Public Offerings: 1975-2000

Figure 16.2 shows that underpricing can be quite dramatic, exceeding 100 percent in some months. In such months, the average IPO more than doubled in value, sometimes in a matter of hours. Also, the degree of underpricing varies through time, and periods of severe underpricing ("hot issue" markets) are followed by periods of little underpricing ("cold issue" markets). For example, in the 1960s, the average IPO was underpriced by 21.2 percent. In the 1970s, the average underpricing was much smaller (9.0 percent),

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VI. Cost of Capital and Long-Term Financial Policy

16. Raising Capital

© The McGraw-Hill Companies, 2002

PART SIX Cost of Capital and Long-Term Financial Policy

Work the Web

So, do the high returns IPOs sometimes earn have you excited? Do you wonder how recent IPOs have performed recently? You can find out at Simply go to the web site and follow the "IPO Center" link. We did, and here is the result:

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