Raising Capital with Initial Public Share Issues in Germany 1977-1985

Setting the offering price for an initial public share issue is difficult because no market price is available to use as a guideline. Some underpricing is desirable, but selling shares below their market value has important financial implications for issuers and existing shareholders with respect to earnings per share, dividends, voting control, and market value. This study of 51 initial offers by German companies from 1977 through 1985 shows that the German new issue market compares favorably with most other stock markets, but since shares rose 28.0 percent on average when trading began there is still room for improvement.