The phenomenon of underpricing is common in the world of IPO market, including USA and Korea, as supported by lots of empirical studies. To promote the efficiency of the IPO market by reforming the point at issue of the underpricing, the issuing price system has been improved to reflect the substantial demand in the IPO market in Korea. In this article, by using the data of the domestic IPO Companies, I show that the phenomenon of the underpricing has changed in relation to the improvement of the issuing price system in Korean IPO market. The main results are following:
First, because of the improvement for issuing price estimation system, the efficiency of IPO market has improved through determining issuing price little more closely to intrinsic value of the issuing company.
Second, the cause of the early abnormal returns was mainly the uncertainty in advance. There was a noticed negative relation between the abnormal returns and offering size in second period and a negative one between the abnormal returns and offering price in third period.
Third, the differences of the degree of underpricing resulting from different offering sizes are not significant unlike the anticipation that the initial average-excess returns of the smaller offering are higher than the larger offering after IPO.
Fourth, examining the difference of the initial average-excess returns according to the industrial classification shows that the initial average-excess returns of the transport equipment industry were the most high at 87.2% and those of chemicals & pharmaceuticals and elec. & communication industry were the lowest at 35.7%, 30.0% respectively.
Finally, most of the issuing prices were undervalued compared with market prices in the same industry at the point of IPO.
