The effects of affiliations on the initial public offering pricing

Is money really left on the table? The role of regular investors in IPO pricing

“…Nonetheless, Equation ( 12) by itself is not suitable for describing how the partial adjustment changes when the IPO is characterized by stronger or weaker relationships; it only describes their direct effect on the underpricing level. To investigate such an effect and then capture all the possible components of excess underpricing, we need to introduce an interaction term between PA and the relationship variables (see Figure 1 for a graphical interpretation), based on the methodology suggested by Geranio et al (2017), to modify Equation ( 12) into the following equation:…”

“…Nonetheless, Equation (12) by itself is not suitable for describing how the partial adjustment changes when the IPO is characterized by stronger or weaker relationships; it only describes their direct effect on the underpricing level. To investigate such an effect and then capture all the possible components of excess underpricing, we need to introduce an interaction term between PA and the relationship variables (see Figure 1 for a graphical interpretation), based on the methodology suggested by Geranio et al (2017), to modify Equation (12) into the following equation: $$${UP}=\alpha +{\beta }_{{PA}}\cdot {PA}+{\beta }_{R}\cdot {Relationships}+{\beta }_{{PA},R}\cdot {PA}\cdot {Relationships}+\gamma \cdot C{ontrols}+\varepsilon .$$$…”