Refiling behavior in the IPO pricing process

This paper investigates the role of information played in pricing initial public offerings (IPOs) and the partial adjustment of IPO prices under a unique environment provided by refiling behavior (updating a new price range after the preliminary prospectus but before the final prospectus). Greater price revisions and underpricing for IPOs with refiling behavior seem to suggest a new perspective to explain IPO pricing. At the beginning, we find that the argument that refiling is to conform to SEC regulations cannot fully explain this behavior. The investigation of the empirical rationales underlying the refiling behavior finds extra supportive evidence for the asymmetric information theory of IPO underpricing. A comparison between the pricing of refiling and non-refiling IPOs shows that non-refiling IPOs have rewarded private information revealed during the bookbuilding period with greater underpricing than have refiling IPOs. After we reexamine the price revisions of refiling IPOs piecewise, we find a puzzle of two-stage partial adjustments: issuers tend to partially adjust the refiling price with respect to negative information incurred at the refiling but partially adjust the offer price with respect to positive information obtained from the refiling to the offering. The inconsistent attitudes of issuers toward positive and negative information are somewhat in contrast to the asymmetric information theory. Instead, we propose two explanations to the IPO underpricing from the underwriters' perspective, relating the underpricing to the probability of withdrawing and the misleading behavior of underwriters regarding the issue of 'overvalued' versus 'underpriced'. Our results hold even after we control for possible sample selection bias. Finally, a further detailed investigation of the IPO pricing process based on multiple-refiling IPOs further supports our empirical analysis.