Beyond Pandemic Peaks: A Study on the Lasting Effects of Pandemic-Era Optimism on IPO Underpricing

In the wake of COVID-19, the federal government injected $5 trillion directly into the economy. This catalyzed a liquidity surge that fueled a historic spike in IPO activity from mid-2020 to 2021, accompanied by considerably elevated levels of underpricing. While existing studies have sought to explore the factors that drove such an increase in underpricing, limited research examines trends beyond the pandemic period. This paper aims to investigate whether the optimistic investor behavior and traditional determinants of IPO underpricing observed during the crisis remain relevant in the post-pandemic periods. Employing regression models on 977 IPO issuances from 2017 to May 2024, this study finds that the optimistic shift in investors’ behavior witnessed during the crisis continues to influence fundraising activities under current market conditions. By extending the analysis to the post-COVID period, this research contributes to the existing body of literature on IPO underpricing and provides a foundation for future research to better understand underpricing trends in the context of macroeconomic disruptions.