THE UNDERPRICING OF UNIT INITIAL PUBLIC OFFERINGS

Unit issues consist of a bundle of common stock and warrants sold together as a package. These issues are often associated with initial public offerings (IPOs). While numerous studies have examined the underpricing of non-unit IPOs, relatively little is known about unit IPOs. This study examines the underpricing of unit IPOs and compares it to that of non-unit IPOs. The unit IPOs are smaller in offer size, riskier, and marketed hy less prestigious underwriters in comparison to non-unit IPOs. However, the initial returns of unit issues are not significantly different from non-unit IPOs. After controlling for size, risk, and underwriter reputation, unit IPOs have significantly lower initial returns in comparison to non-unit IPOs. Further, unit IPOs display a lower propensity to issue subsequent seasoned offerings in comparison to non-unit IPOs. Several possible motivations for issuers to go public with units are examined.