* I would like to thank Frank Dobbin, Christopher Marquis, Peter ...
Reconsidering Price: Institutional Complexity in Initial Public Offering Prices* Vince Feng Department of Sociology Harvard University Word Count: 9,491 excluding end notes Abstract Initial Public Offerings (IPOs) are priced in two stages, with the staged pricing serving as a natural experiment testing economic price theories. IPO second-stage return outcomes (first-day returns, or “underpricing”) directly contradict neoclassical models, with non-rational investor models from behavioral theory addressing second-stage underpricing unable to explain firststage return outcomes (pricing above the range). This study proposes that first-stage return outcomes isolate issuer-side explanatory factors, with institutional logics explaining variation in pricing above the range for the approximately 800 IPOs from 2001 to 2010. Two logics— Income and Growth—coexist in the private investment field. Investors controlling over half of the IPO companies during this time period perceive companies and IPOs differently due to these two logics. Investor practices emanating from these perceptions differ in resistance to underwriters promoting underpricing, causing variation in IPO first and second-stage return outcomes. Quantitative analysis shows that the Income approach significantly improves, and Growth significantly worsens, IPO pricing even after taking into account behavioral and strategic considerations. Thus, institutional complexity can influence calculative rationality through varying perceptions of the environment, explaining price phenomena poorly understood by rational adaptation and behavioral perspectives. Keywords Institutional Logics, Price Theory, IPOs, Sociology of Markets * I would like to thank Frank Dobbin, Christopher Marquis, Peter Marsden, Mary Brinton, Filiz Garip, Orlando Patterson, and participants at the Stanford Economic Sociology workshop and ABC Network “Organizing Institutions” conference for their comments and suggestions. Contact Vince Feng, Department of Sociology, Harvard University, William James Hall, 33 Kirkland Street, Cambridge, MA 02138. E-mail: firstname.lastname@example.org.
! ! 4! Table 3: Pricing Above the R
! ! 6! Table 4: Offer-Price Return
! ! 8! Table 5: First-Day Return -
! ! 10! Table 6: Pricing Above the
! ! 12! Table 7: Offer-Price Return
! ! 14! Table 8: Predictions of Alt