Underpricing of Carved-out Initial Public Offerings

Abstract

We document that carved-out IPOs produce an average initialreturn of3.45 percent on the rst day oftrading which issignif-icantly lower than underpricing ofregular IPOs. This decreasedinitial return can beattributed to the loweruncertainty aboutthevalue ofcarved-out rmsrelative to typical IPOs.Evidence also supportsthe hypothesisthat the carved-out issuesunderwritten by prestigious investment banks experience lowerlevel of deviation from the oer price, on the rst day oftrad-ing. However,the size ofthe issue and the proportion ofequityretained by the parentrmsprovide no explanation regarding theunderpricing ofthe carved-out IPOs.