Share Retention, Underwriter Reputation, and Initial Public Offering Underpricing

Share Retention, Underwriter Reputation, and Initial Public Offering Underpricing by Marcia Yvonne Reid-Grant MBA, Bernard M. Baruch College, City University of New York, 1992 BSc, University of the West Indies, 1989 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University December 2018 Abstract Initial public offering (IPO) underpricing is a costly practice that decreases the IPO proceeds accruing to the issuing firms and can derail a firm’s growth objectives. The purpose of this correlational study was to determine the relationship between share retention, underwriter reputation, and IPO underpricing among a population of IPOs issued in Jamaica. The efficient market hypothesis served as the theoretical framework for this study. Archived data for 52 IPOs issued in Jamaica from 1986 to 2018 were collected and Spearman’s correlation matrix and heteroscedasticity-consistent standard errors regression analysis were applied. The outcomes of this study indicated no significant relationship between share retention and IPO underpricing, α = . 1 and α = . 05, r = . 059, p = . 35; however, there was partial acceptance of the alternative hypothesis that underwriter reputation is related to IPO underpricing at α = . 1, r = . 234, p = . 055, but not α = . 05. Additionally, underpricing was higher for IPOs supported by the high reputation underwriters, and share retention was a slightly better predictor of IPO underpricing for this group of IPOs, R = . 02, p = . 31 versus R = . 01, p = . 75. Finally, the overall model indicated that the independent variables did not jointly explain IPO underpricing, F(2, 45) = . 78, p = . 455, R = . 032. The results of this study might contribute to social change because successful IPOs can increase employment opportunities as well as improveInitial public offering (IPO) underpricing is a costly practice that decreases the IPO proceeds accruing to the issuing firms and can derail a firm’s growth objectives. The purpose of this correlational study was to determine the relationship between share retention, underwriter reputation, and IPO underpricing among a population of IPOs issued in Jamaica. The efficient market hypothesis served as the theoretical framework for this study. Archived data for 52 IPOs issued in Jamaica from 1986 to 2018 were collected and Spearman’s correlation matrix and heteroscedasticity-consistent standard errors regression analysis were applied. The outcomes of this study indicated no significant relationship between share retention and IPO underpricing, α = . 1 and α = . 05, r = . 059, p = . 35; however, there was partial acceptance of the alternative hypothesis that underwriter reputation is related to IPO underpricing at α = . 1, r = . 234, p = . 055, but not α = . 05. Additionally, underpricing was higher for IPOs supported by the high reputation underwriters, and share retention was a slightly better predictor of IPO underpricing for this group of IPOs, R = . 02, p = . 31 versus R = . 01, p = . 75. Finally, the overall model indicated that the independent variables did not jointly explain IPO underpricing, F(2, 45) = . 78, p = . 455, R = . 032. The results of this study might contribute to social change because successful IPOs can increase employment opportunities as well as improve income distribution and socioeconomic indicators for the communities served by IPO firms. Share Retention, Underwriter Reputation, and Initial Public Offering Underpricing by Marcia Yvonne Reid-Grant MBA, Bernard M. Baruch College, City University of New York, 1992 BSc, University of the West Indies, 1989 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University December 2018 Dedication To my son, Chadwyc Reed Grant, the person who sacrificed the most for me to achieve this milestone. Thanks Chad, you are indeed a precious gift from God. Acknowledgments First I would like to thank God for his unfailing love, unfettered patience and loving kindness that I have experienced repeatedly along this DBA journey. I can unreservedly say I could not have made it without him. To my son Chad, thanks for forgiving me even when you did not understand the many times I had to postpone your activities to meet a DBA deadline. I know my new-found availability may appear strange to you, but I am looking forward to it. I would like to especially acknowledge the contribution of my committee chair and advisor, Dr. Thomas Schaefer whose guidance, expertise, and motivation were critical to this process. Dr. Schaefer’s hand-holding was indispensable, but I appreciate most of all his willingness to ask the difficult questions when I needed to be refocused and redirected. My sincere appreciation also to my committee member Dr. Deborah Nattress and my university research reviewer, Dr. William Stokes. Thanks for using your eye for details and immense knowledge to provide insightful comments, direction, and clarifications to this research project. I am also grateful to the managing director and her team at the Jamaica Stock Exchange for their role in the data collection process. To Doreen Forrester, who willingly allowed me to take over her house on the countless number of weekends when I needed to hide and write, thank you my friend. Finally, a special thanks to my family and circle of friends, whose loyalty, patience, spiritual support, and encouragement have been a beacon of light throughout my life and particularly for this project. Thank you all for your individual and combined contributions in making this study possible.