Market Segmentation and IPO-Underpricing: The German Experience

5. Summary
Market Segmentation and IPO-Underpricing: The German Experience
This contribution to the well-known and worldwide underpricing phenomenon discusses the
coherence of market segmentation and the extent of underpricing. Based on the implications
of Beatty/Ritter and Rock the German equity market was analyzed. 435 IPOs took place from
1997-2002 in one of the four market segments Official Trading, Regulated Market, Unofficial
Regulated Market and Neuer Markt. These segments are different from each other with regard
to their size, market relevance and listing requirements. Considering the whole market there is
a restricted evidence of the suggestions of Rock and Beatty/Ritter only. Merely for the Official
Trading, the Regulated Market and the Unofficial Regulated Market the empirical findings
confirm the implications that the underpricing is the lower the larger the market size and that
the underpricing is the lower the lower the information asymmetry is respectively. Concern-
ing the Neuer Markt the empirical findings are not clear in harmony with what would be ex-
pected because the underpricing is in comparison to the other segments far higher even if the
Neuer Markt is the second largest market-segment for IPOs and demands the highest listing
requirements. These findings leads to the conclusion that first, the ex-ante uncertainty of the
enterprises which apply for a listing at the Neuer Markt is incomparable high and second, the
listing requirements of an admission for an IPO at the Neuer Markt are not sufficient to re-
duce the uncertainty about the value of the issuer and consequently the extent of underpricing.
Insofar, the effect of the renewal of the market segmentation within in the next year on the
extent of underpricing is not obvious because it is questionable if the information asymmetry
of an IPO could be reduced with a new segmentation only but without stronger listing re-
quirements.
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