The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories

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ID: 306305
1994
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Abstract
We test the empirical implications of several models of IPO underpricing. Consistent with the winner's-curse hypothesis, we show that in markets where investors know a priori that they do not have to compete with informed investors, IPOs are not underpriced. We also show that IPOs underwritten by reputable investment banks experience significantly less underpricing and perform significantly better in the long run. We do not find empirical support for the signaling models that try to explain why firms underprice. In fact, we find that (1) firms that underprice more return to the reissue market less frequently, and for lesser amounts, than firms that underprice less, and (2) firms that underprice less experience higher earnings and pay higher dividends, contrary to the models' predictions.
Reference Key
openalex_W2004501718 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Roni Michaely, Wayne H. Shaw
Journal review of financial studies
Year 1994
DOI
10.1093/rfs/7.2.279
URL
https://doi.org/10.1093/rfs/7.2.279
Keywords Keywords not found

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