An analysis of the ownership structure in regards to the phenomenon underpricing for German IPOs

This quantitative paper investigates to what extend the phenomenon underpricing effects outside blockholdings of German IPOs in a timeframe from 2005 until 2015. Previous literature gave different explanations why firms underprice their shares in regards to the ownership structure. While some argue that underpricing and the associated oversubscription of shares leads to an allocation to small investors and thereby reduces outside blockholdings, other argue that having outside blockholders is desired. Data that covers 82 firms listed on the Frankfurt Stock Exchange/ Xetra is used to examine the relationship between underpricing and outside blockholding at the end of the year in which the IPO took place. The results however do not support the expectations that underpricing affects the fraction of outside blockholdings. Factors such as pre-IPO inside blockholding seem to be better predictors of outside blockholding, especially for a country like Germany in which a high degree of inside ownership is existent whereas these shareholders tend to retain control through the holding of large blocks post-IPO.