Underwriting in the Australian IPO Markets: Determinants and Pricing

We examine the factors that explain the underwriting decision and underwriting fees for a sample of Australian Initial Public Offerings (IPOs), spanning the period 1999-2016. This includes young and often unprofitable IPOs that list as Commitments Test Entities (CTEs). We find: (i) CTE IPOs are more likely to be underwritten than non-CTE IPOs; (ii) IPOs that allow oversubscription of the shares and/or are issued by way of a bookbuild are less likely to be underwritten; and, for underwritten offers, we find (iii) greater initial returns and wealth loss to pre-existing shareholders for bookbuild IPOs and lower initial returns (wealth loss) in IPOs that allow oversubscription of the shares.