FIN-01-061

IPO Pricing in the Dot-Com Bubble: Complacency or Incentives

December 2001 (Revised February 2002)

Alexander P. Ljungqvist and William J. Wilhelm, Jr.

ABSTRACT

IPO initial returns reached astronomical levels during 1999-2000. We show that the regime shift in initial returns and other elements of pricing behavior can be at least partially accounted for by a variety of marked changes in pre-IPO ownership structure and insider selling behavior over the period which reduced key decision-makers™ incentives to control underpricing. After controlling for these changes, there appears to be little special about the 1999-2000 period, aside from the preponderance of Internet and high-tech firms going public. Our results suggest that it was firm characteristics that were unique during the ihdot-com bubblelo and that pricing behavior followed from incentives created by these characteristics.
Alexander Ljungqvist
Institution: Stern School of Business, New York University
Email: aljungqv@stern.nyu.edu
Phone: (212) 998-0304
Home Page: http://www.stern.nyu.edu/~aljungqv/

William J. Wilhelm, Jr.
Institution: Carroll School of Management, Boston College
Email: william.wilhelm@bc.edu
Phone: (617) 552-3990
Home Page: http://www2.bc.edu/~wilhelmw/

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