Information Disclosure And Adverse Selection Explanations For IPO Underpricing
- Topics:
- IPO
- Tags:
- Corporate Communications,
- Disclosure,
- Finance,
- Financial Planning,
- Financial Services,
- Investment,
- IPO,
- Marketing,
- Public Relations
- Source:
- University of Pennsylvania
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Overview: Underpricing in IPOs (Initial Public Offering) is a significant cost of raising capital that theories purport arises from adverse selection at the IPO date. Disclosure is a tool firms can use to ameliorate adverse selection. This paper shows that greater disclosure frequency in the pre-IPO period is associated with lower underpricing. The negative rela tion is significant only for informative disclosures, not for disclosures such as public relations announcements. The negative relation is significant after controlling for factors that affect ex ante uncertainty about the offering and for alternative mechanisms that firms can use to signal firm quality. They demonstrate a significant positive association between disclosure frequency and underpricing, consistent with claims that internet firms use underpricing to generate attention.
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Format: PDF | Size: 106KB | Date: Oct 2005 | Pages: 43
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