Determinants of IPO underpricing - A comparison between the UK and Germany

Abstract: The purpose of this study is to investigate the influencing factors on underpricing in the UK and Germany. The focus hereby lies on the different institutional framework (common and civil law) and implied ownership structure of both countries. A quantitative analysis is conducted using multiple linear regression model and descriptive statistics. The dependent variable underpricing is regressed on country- and firm-specific variables. The underlying OLS aussumptions are tested and robustness tests of the findings are performed. The analysis includes 177 IPOs listed on the UK and German stock exchanges (LSE, AIM, FSE) during 2009-2013. Data was obtained from the S&P IQ Capital Database. The outcomes of this study indicate that the UK as common law country encourages underpricing, which contradicts previous empirical research. Characteristics of institutional framework, such as legal enforcement and quality of legal framework, are positively and negatively related to underpricing respectively. It is further found that the implied ownership structures for both legal origins seem to favour blockholder in the after-crisis period