IPO underpricing under COVID-19 in Brazil

Purpose This study examines IPO underpricing in Brazil from 2010 to 2021, focusing on differences in post-IPO stock performance between pre-pandemic and pandemic-period offerings. Design/methodology/approach The sample includes 113 companies that went public (55 pre-pandemic and 58 during the pandemic). Initial returns, short- and long-term performance and a pandemic fear index were used to assess the relationship between underpricing and the pandemic while controlling for firm, management and investor characteristics. Findings Pre-pandemic IPOs exhibited stronger capital structures, longer operating histories and higher profitability, whereas pandemic-period IPOs showed higher leverage, greater governance standards and larger offering volumes. The analyses indicate higher underpricing during the pandemic, which increases with higher pandemic-related fear. This relationship intensified with institutional investors' participation and the percentage of capital increase. Further analyses show this effect remains only in the short term. Research limitations/implications The study is limited to the Brazilian market and the period spanning 2010–2021; therefore, the findings may not be generalized to other markets or periods. Practical implications Investors gain insights into IPO risks during crises, while issuers can adjust their strategies. Social implications Informing policymakers and regulators about market stability and investor protection. Originality/value Novel evidence on IPO underpricing in an emerging market during an extreme exogenous shock, highlighting the role of pandemic-related fear.