A tax‐based motive for the underpricing of initial public offerings Article

cited authors

  • Reside, MA; Robinson, RM; Prakash, AJ; Dandapani, K

fiu authors


  • This paper presents a model of entrepreneurial wealth maximization for the pricing of initial public offerings (IPOs). It is an extension of one previously presented in the literature. The model shows that personal tax rates on ordinary income and capital gains may, in part, determine IPO pricing: an increase in the capital gains tax rate should lower the degree of underpricing. An empirical analysis of the effect of the Tax Reform Act of 1986, which raised the capital gains tax rate, shows that the average degree of underpricing did decrease as predicted, and that this occurs after controlling for other possible influences. Copyright © 1994 John Wiley & Sons, Ltd.

publication date

  • January 1, 1994

Digital Object Identifier (DOI)

start page

  • 553

end page

  • 561


  • 15


  • 6