Corporate Hedging and IPO Underpricing in Türkiye

The initial public offerings (IPO) phenomenon remains one of the most nebulous and sophisticated issues in the financial industry. Numerous studies in different countries provide significant evidence by addressing various aspects of underpricing of IPOs. Information asymmetry between investors and issuers is a prominent reason for the extent of underpricing. Issuers tend to disclose more information to reach a fair equilibrium price in the market. Hedging instruments are the most widely used financial risk management tools that can decrease information asymmetry. The relationship between corporate derivatives use and information asymmetry has been investigated through value relevance channels in secondary markets. However, researchers have recently started to analyse the impact of hedging using various markets, such as debt markets, mergers and acquisitions, and IPOs. Moreover, increasing interest in real assets and initial public offerings due to a high inflationary environment can provide further evidence for IPO underpricing, especially in emerging markets. For this purpose, this study investigates the impact of financial risk management using financial derivatives on short-term IPO performance (i.e., IPO underpricing) in the Turkish IPO market. Employing a sample of 287 Turkish IPOs between 2008 and 2023, we find that financial derivatives use negatively affects the level of IPO underpricing.