 |
| Price Revision |
When a firm undertakes an price. Although the range identifies high and low points, the midpoint of the range receives most of the attention.
Prior to the offering, both industry and market conditions change, which may warrant adjustments to the filing range. these changes, called price revisions, may occur throughout the process, including just days before the actual offering.
The simpulan offer price revision occurs when the actual offer price is set, which may be above or below the preliminary (or adjusted) filing range. However, legal limits exist on the extent of price revisions, as firms must use an actual offer price that is within 20% (above or below) of the simpulan filing range.
    |
Price revisions are highly correlated to aftermarket performance on the first trading day (i.e., initial return), with positive offer price revisions being associated with higher first-day returns.
Two potential explanations exist for this phenomenon. First, upward price revisions signal good market conditions; thus, the correlation may really be driven by the cause of the revision and not necessarily the revision itself.
Second, it is possible that firms do not fully adjust offer prices in response to information.
