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This study was conducted to find evidence of short-term underpricing of initial public offerings (IPOs) and factors that explain the level of underpricing based on IPO samples in the period between January 2005 and July 2012 in Vietnam. | 74 | Trần Thị Hải Lý & Dương Kha | 74-91 Evidence of Underpricing of Initial Public Offerings in Vietnam TRẦN THỊ HẢI LÝ University of Economics HCMC Email: haily@ueh.edu.vn DƯƠNG KHA University of Economics HCMC Email: khatcdn@ueh.edu.vn ARTICLE INFO Received: March 21, 2013 Received in revised form March 28, 2013 Accepted: June 15, 2013 Keywords: stock market short-term underpricing IPO ABSTRACT This study was conducted to find evidence of short-term underpricing of initial public offerings (IPOs) and factors that explain the level of underpricing based on IPO samples in the period between January 2005 and July 2012 in Vietnam. The authors found certain evidence to support the underpricing, with the underpricing rate set at 38% and 49%. Having bootstrapping regression model employed, the results showed that the two factors – the exceeding purchase ratio and the starting price of the auctions – negatively correlated as expected with underpricing rate while impact of market conditions appeared relatively weak. Other factors such as size, listing lateness, company age, state ownership after IPOs did not correlate with the underpricing levels in Vietnam. Underpricing of Initial Public Offerings in Vietnam JED No.217 July 2013| 75 1. INTRODUCTION An Initial Public Offering (IPO) refers to the first sale of stock of a private company to the public. An IPO is an event that not only offers important implications for businesses but also is academically attractive via several empirical patterns commonly found in many international stock markets. One of those patterns is the underpricing. IPOs carried out by Vietnamese firms have their own specific features. First, major IPOs are often conducted by the formerly state-owned enterprises and therefore after the IPOs, the state still holds large percentages of shares. Next, the IPO pricing mechanism in Vietnam is based on separate auction, whereas the pricing mechanism in most markets is book building. In addition, the
