This article tests four hypotheses (signalling, market tendency, market characteristics and the ex ante uncertainty and information asymmetry) to explain the initial public offerings (IPOs) underpricing in the Tunisian market. Most of the empirical studies focus mainly on developed markets and only a few studies analyse the climates of IPOs in emerging markets. The Tunisian business environment is motivating because of the institutional reforms that have been successfully implemented since 1994. The study analyses all the Tunisian IPOs from March 1992 to April 2008 in order to explain underpricing in IPOs. The findings show that IPOs underpricing is mainly explained by the signalling and the market characteristics hypotheses. The phenomenon of underpricing in IPOs is important for portfolio managers who are expected to make optimal (value-maximising) financing choices. Also, results of this study provide insight into the business environment in the case of the Tunisian market.
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