Personal Taxes and the underpricing of initial public offerings Article

Dandapani, K, Dossani, R, Prakash, AJ et al. (1992). Personal Taxes and the underpricing of initial public offerings . MANAGERIAL AND DECISION ECONOMICS, 13(4), 279-286. 10.1002/mde.4090130402

cited authors

  • Dandapani, K; Dossani, R; Prakash, AJ; Reside, MA

authors

abstract

  • The purpose of this paper is to propose an alternative explanation for the underpricing of initial public offerings (IPOs). The first section reviews the empirical evidence on underpricing IPOs in support of various alternative hypotheses that have been put forth in the literature. This is followed by our model which examines the effect of personal taxes paid by entrepreneurs on the choice of the issue price. We show that, in the presence of taxes and for certain levels of ownership retained by the entrepreneur, it may be preferable to underprice the issue. This theoretical result is reinforced by both the simulation and empirical tests. Copyright © 1992 John Wiley & Sons, Ltd.

publication date

  • January 1, 1992

published in

Digital Object Identifier (DOI)

start page

  • 279

end page

  • 286

volume

  • 13

issue

  • 4