Joseph J. Henry

- Working Papers -

How much money is really left on the table? Reassessing the measurement of IPO underpricing (with Terry O'Brien)

IPO issuers are thought to collectively leave billions of dollars "on the table" by underpricing shares relative to the initial trading price. However, this comparison overlooks an important factor: share quantity. The initial market price reflects trading of only about 10% of IPO shares, while issuers need to sell 100% of shares at once. Because investors have different valuations, the price that clears a small quantity exaggerates the feasible price for the full IPO.

Consider concert tickets as an analogy, and imagine all seats have the same quality. If only a small fraction of seats were available, then the most enthusiastic concertgoers ("superfans") would bid up the price. But to sell every seat in the venue simultaneously, you would need to reduce the price to attract a broader audience. The same logic applies to IPOs: you can sell a small number of IPO shares for a higher per-share price than you can sell a large number of IPO shares.

We assess the extent of the mismeasurement by introducing a new measure of IPO underpricing that incorporates both share prices and their associated quantities. Using data from 2,937 IPOs from 1993-2023, our evidence suggests that IPOs are underpriced by substantially less than is commonly believed, perhaps up to 40% less. We conclude that much of what appears to be money left on the table actually reflects the natural price difference between selling small versus large quantities of shares.

Media coverage: Money Stuff: Pod Shops Are the New Banks (BBG, Aug. 2025); Money Stuff: The Podcast (BBG, Aug. 29, 2025); US IPO Day-One Surges Driven by ‘Superfan’ Scramble, Study Says (BBG & Y!, Aug. 2025); Exec Sum (Aug. 19, 2025); IPO Pops Overstated? New Study Says Enthusiasts Skew Underpricing Data (QQ, Aug. 2025);

Retail IPO Access: High Hopes, Low Returns (with David Gempesaw, Kevin Pisciotta, and Han Xiao)

We conduct the first comprehensive analysis of Retail IPO Access programs that allocate IPO shares to retail investors at the same price as institutional investors. Retail IPO stocks underperform contemporaneous IPOs by about 20 percentage points in the first year. We identify two key factors contributing to this underperformance. First, the earnings-to-offer price ratio for Retail IPOs is lower, suggesting adverse selection of aggressively priced IPOs. Second, Retail IPOs experience higher pre-IPO Google search activity and greater post-IPO fractional trade volume, indicating attention-driven retail trading. While adjusting for adverse selection narrows the performance gap, it becomes statistically insignificant when accounting for retail trading. Our findings suggest both adverse selection and attention-driven trading contribute to the underperformance, raising concerns about the benefits of Retail Access programs for retail investors and whether these programs fully disclose associated risks.

Presentations: FMA Annual Meeting (2024); 32nd Annual Conference on Pacific Basin Finance, Economics, Accounting, and Management (2024, by coauthor); FMA Annual Meeting FinTech New Ideas session (2022)

Weathering the Blow of a Disrupted Roadshow (with Matt Gustafson, Emily Kim, and Kevin Pisciotta)

Exploiting weather-induced shocks to IPO roadshow interactions, we provide evidence that roadshow disruptions not only negatively affect investor participation, but also reduce ownership breadth and equity prices, both in the IPO period and during the subsequent year. These effects are strongest for issuers with low institutional backing and generate a multi-year path dependency whereby roadshow disruptions lead to less liquidity, equity financing, and capital expenditures. These long-run benefits to IPO roadshow participation highlight a new and important channel through which IPO issuers benefit from roadshows when transitioning to public ownership.

Presentations: EFA Annual Meeting (2024)

The Evolution of IPO Bookbuilding (with Matt Gustafson, Emily Kim, and Kevin Pisciotta)

We examine trends in the length and intensity of IPO roadshows. The length and number of prospectuses distributed during roadshows systematically decline over the last fifteen years, driven by factors such as technology, regulation, and growth in passive investment. The discrete shift to virtual roadshows during the 2020 COVID-19 period is accompanied by a dramatic decline in roadshow length and a small decline in prospectus distribution. Overall, we document a transition to a more expedited IPO bookbuilding and marketing process. This transition is more gradual than in the follow-on market but is accelerated by COVID-19.

Media mentions: Money Stuff: Ignoring the Rules Sometimes Works for Elon Musk (BBG, Apr. 2021);

Presentations: Hofstra Financial Regulations & Technology, Advances Since the Financial Crisis (2022); Silicon Prairie Finance Conference (2022, by coauthor)

- Refereed Publications -

Can Banks Save Mountains? (with David Haushalter and Peter Iliev). Review of Corporate Finance Studies (2023).

We study the role of investors in addressing environmental and climate challenges using the setting of mountaintop removal (MTR) coal mining. MTR uses explosives to remove elevated portions of land and expose the coal seams below. In the mid-2000s, Bank of America and other lenders began adopting policies to curtail MTR-related lending, allowing us to study the environmental actions of specific pairs of lenders and borrowers. Using the staggered introduction of these lender policies, we find that these policies did not lead to meaningful changes in lending or MTR mining, on average. However, larger banks, banks subject to media pressure, and banks with deposits in the affected mining areas are more likely to reduce MTR-related loans.

Presentations: RCFS Winter Conference (2022, by coauthor), Iowa State University (by coauthor)

Retail ETF Investing (with David Gempesaw and Han Xiao). European Financial Management (2023).

We identify retail buy and sell orders of exchange-traded funds (ETFs) using Trade and Quote data in order to study the nature of retail investments in this relatively new asset class. Compared to other investors, retail investors trade the cross-section of ETFs very similarly overall, but with additional weight on certain categories like leveraged funds. Estimated retail holding periods are also longer. Across fund categories, we observe momentum-like trading where net buying and prior fund returns are positively correlated. This contrasts with prior evidence of contrarian trading in stocks (i.e., buying and returns negatively correlated). Despite these differences, the performance of retail and non-retail ETF investments appears similar. Our results provide context for recent scrutiny of investing habits by the financial media and the Securities and Exchange Commission.

Piecing Together the Extent of Retail Fractional Trading (with David Gempesaw and Raisa Velthuis). Global Finance Journal (2022).

Fractional trading is a recent innovation that allows investors to buy fractions of one share of stock. Using data from the Robinhood stock trading app, we set out to answer (1) how retail investors use fractional trades, and (2) how much fractional trading is occurring. Market observers and financial journalists have had difficulty answering these questions due to data limitations.

Our empirical strategy compares 'expensive' shares with otherwise-similar shares that are easier for individual investors to buy in full. Take Class A ($341,150) and Class B shares ($228) of Berkshire Hathaway as an example. We find that the growth in ownership of Class A shares was more than 2500 (!) percentage points higher for Class A shares over the first few months of fractional trading, despite the much higher price per full share. Approximating this comparison in a larger sample of stocks (>$100 versus <$50 per share), we find that the introduction of fractional trading expands expensive stock ownership by roughly 50 percentage points, with implications for small investors' investment opportunity sets.

While our findings indicate that fractional trading affects retail portfolio management, the low volume of fractional trading activity suggests that price-related impacts of fractional trading are unlikely.

The competitive effects of IPOs on industry rivals. Review of Financial Economics (2022).

Do initial public offerings (IPOs) confer a performance advantage to issuing firms versus rivals that didn't raise millions of dollars of capital? This question is difficult to answer because managers choose the timing of the firm's IPO (e.g., when the industry is doing especially well and subsequent rival performance is likely to be more modest). Using an instrumental variable to address this timing issue, I find that an IPO's effect on a rival's subsequent sales growth, return on sales (ROS), or Tobin’s q depends on the rival's degree of financial constraints at the time of the IPO. Rivals with low cash balances or high leverage exhibit relatively worse performance, with implications for recent regulatory attempts to increase the volume of IPO activity.

An Analysis of Selling Concessions, Reallowance Fees, and Price Changes in the Marketing of IPOs (with Jim Brau). Journal of Entrepreneurial Finance (2022).

We model and assess the empirical evidence for two distinct marketing strategies available to investment bankers during initial public offerings (IPOs). The first is to "push" under-demanded, small IPOs onto retail investors, and we proxy for sales pressure using the reallowance fee granted to brokers. The second strategy is to use initial underpricing and upward revisions in the offer price to create the appearance of demand (a la Shiller's Impresario hypothesis). The use of both strategies by underwriters has implications for investor welfare.

- Conference Discussions of Others' Research -

"A closer look at the substitution effects between retail trading and national lotteries," by Qiqi Liang and Licheng Sun. Financial Management Association Annual Meeting, October 2024 (Grapevine, TX).
"Deciphering Greenium: the Role of Investor Demand," by Liying Wang and Juan (Julie) Wu. Eastern Finance Association Annual Meeting, April 2024 (St. Petersburg, FL).
"Product Life Cycle and Initial Public Offerings," by Tina Oreski and Jiajie Xu. Financial Management Association Annual Meeting, October 2022 (Atlanta, GA).
"Is News Really News: The Effects of Selective Disclosure Regulations," by Brent Kitchens, Robert Parham, and Chris Yung. 65th Meeting of the Euro Working Group for Commodities and Financial Modelling & the Center for International Financial Services and Markets at Hofstra University, April 2022 (New York, NY).
"Measuring Attention: The Case of Amendments to 10K Annual Reports," by Zhongling (Danny) Qin. Financial Management Association Annual Meeting, October 2019 (New Orleans, LA).

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Interrelationships in Inventory Turnover Performance Between Supplier and Customer Firms (with Peter Christensen and Jim Brau). Business and Economics Research Journal (2023).

Using inventory turnover to measure the efficiency of corporate inventory management, we estimate equilibrium relationships in inventory turnover between supplier firms and customer firms. We find a positive correlation between supplier and customer inventory turnover, suggesting that inventory efficiency is integrated along the supply chain. Our findings highlight the importance of expanding the research and practice of working capital management beyond the firm-level.

Presentations: FMA Annual Meeting Corporate Finance New Ideas session (2021)

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