Information asymmetries, ex-ante uncertainty, economic downturns, and the pricing of German initial public offerings

Abstract

Based on asymmetric information theories, with a special emphasize on Rock’s winner’s curse model (1982, 1986) and ex-ante uncertainty explanations by Beatty and Ritter (1986), this thesis analyzed the effects of economic downturns on IPO under pricing in Germany across 192IPOs from 2002-2022using an economic sentiment indicator. It was found that, on average, German IPOs were under priced by5.22%over the period and that, after controlling for industry and year fixed effects, under pricing increases with decreasing economic sentiment, ultimately contradicting previous research. Overall, it is shown that ex-ante uncertainty theories are not able to explain German IPO under pricing.