Employee Stock Options and the Underpricing of Initial Public Offerings

@inproceedings{2003EmployeeSO,
  title={Employee Stock Options and the Underpricing of Initial Public Offerings},
  author={},
  year={2003}
}
  • Published 2003
The central question surrounding the IPO underpricing puzzle is why issuers are willing to sell their shares at a price that is less than what the market is willing to pay. This paper shows that a major reason why managers are willing to underprice shares at IPO is that they use options and stock grants to protect themselves from the dilution to their existing shares. Underpricing can have a large positive tax effect for options they hold in addition to making new options more valuable. I show… CONTINUE READING