• September 2019
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Oversubscribed

In which the demand for an initial public offering of securities is greater than the total number of shares initially issued during the IPO.

If the shares are accurately priced, then there should be no shortage or excess of shares. When demand exceeds supply, it means the share price was set too low. The immediate remedy to an oversubscription scenario is to offer issue additional securities and/or adjust the price to better reflect demand. It is partially due to the risk of oversubscription that it is so important for corporations to work with underwriters in advance of an IPO in order to better ensure that the price per share is properly grounded.

 

EXAMPLE:

When Facebook launched its IPO in 2012, it chose to both issue more shares than it had intended to and issue its shares at a higher price than originally anticipated because forecasters predicted the IPO process would be oversubscribed. The forecasters were correct, and it was ultimately appropriate that Facebook issued millions more shares (and at a higher price) than it had originally anticipated it would need to.