Founders, Private Equity Investors and Underpricing in Entrepreneurial Initial Public Offerings
One of the most important events in the life of an entrepreneurial firm is when it undergoes an Initial Public Offering (IPO). Underpricing of the stock at the IPO is the difference between the initial price at which a firm’s stock is offered and the closing price of the stock on the first day of trading. It is a major concern to the entrepreneur and firm since it represents value the market ultimately sees in the stock but which the firm/entrepreneur did not obtain when the stock was first offered for sale. This paper examines IPO underpricing in a sample of UK entrepreneurial IPOs where founders retain a significant ownership stake.