Underpricing in a Capital Market: Case of Latvia

Abstract

The study is devoted to a little studied IPO underpricing problem. IPO underpricing is the difference between the IPO offer price paid by institutional and individual investors who commit to buying shares before trading on the Stock Exchange and the closing price, which is the last trading price recorded when the market closes at the end of the day. This price difference shows the extent to which the company did not value itself and how much capital it did not make due to the too low offer price. By assessing the price difference and multiplying it by the number of shares issued in public turnover on the Stock Exchange, the company can calculate exactly how much capital it could additionally invest in financing growth and business development, which in the long term would also create added value to the entire national economy. The aim of the study is to research the problem of underpricing in the Baltic capital market.