EXANTE UNCERTAINTY AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS - FURTHER CANADIAN EVIDENCE

This paper extends the empirical analysis of Jog and Riding (1987) using Canadian IPOs into the prediction that the underpricing of IPOs increases with ex ante uncertainty. We consider a wide range of variables argued in the literature to proxy for ex ante uncertainty, as well as one additional variable which is uniquely available in the Canadian setting - the decision to include an earnings forecast in the offering prospectus. The results are, for the most part, consistent with those of studies based on US. IPOs, and with Jog and Riding. In addition, we find the relation between underpricing and the decision to forecast variable to be statistically significant in the Predicted direction. There are, however, several surprises. The most notable of these are the significance of the market-based risk and ownership retention measures (in contrast with Jog and Riding) and the lack of significance of the age variable (in contrast with Ritter, 1984).