The Initial Public Offerings Underpricing and ‎It's Determinants in Tehran Stock Exchange

This paper seeks to investigate the initial aftermarket performance of 142 ‎Iranian IPOs listed on Tehran Stock Exchange for the period 1997-2005 to ‎contribute to the growing body of international evidence on the anomalous ‎performance of IPOs in the short run. The results suggest that Iranian IPOs ‎are underpriced on the initial trading window of 1 through 4-weeks on ‎average of 14.85%, as are almost all IPOs in different countries. In terms of ‎industry sub-sectors, the adjusted initial underpricing is 70.24% for minerals, ‎‎62.31% for oil and nuclear fuel, and 1.12% for multimedia industries. ‎Finally, the investigation of possible factors influencing the high initial ‎positive returns in TSE (the size of the issue, age of the issuing firm, ‎financial risk of the issuing firm, gross proceeds from the issue, market ‎sentiment, offer rate and the institutional ownership of the issue) indicates ‎that the offer rate and financial risk of the issuing firm are significant ‎determinants of the initial underpricing of Iranian IPOs. As such, the results ‎yield strong support for the signaling hypothesis as possible explanation for ‎the underpricing phenomenon on the Iranian IPO market.‎