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Anatomy of Initial Public Offerings of Common Stock

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Author Info
 Tinic, Seha M
Abstract

Initial public offerings of common stocks are typically underpriced . In this paper, the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liabili ty and the associated damages to the reputations of investment banker s. The empirical results, based on samples of initial public offering s of common stocks that were brought to the market before and after t he Securities Act of 1933, provide considerable support for the impli cit insurance hypothesis. Specifically, gross underpricing and market segmentation between prestigious and fringe investment bankers in or iginating unseasoned new issues appear to be peculiar to the post-193 3 era. Copyright 1988 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 4 (September)
Pages: 789-822
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Handle: RePEc:bla:jfinan:v:43:y:1988:i:4:p:789-822

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  1. Kenbata Bangassa, 2000. "Performance Of The UK Investment Trust IPO's," Research Papers 2000_20, University of Liverpool Management School. [Downloadable!]
  2. Cristián Celis & Gustavo Maturana, 1998. "Initial Public Offerings In Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 1(1), pages 7-31. [Downloadable!]
  3. Othman Yong & Zaidi Isa, 2003. "Initial performance of new issues of shares in Malaysia," Applied Economics, Taylor and Francis Journals, vol. 35(8), pages 919-930, January. [Downloadable!] (restricted)
  4. Dimitris Kenourgios & Spyros Papathanasiou & Emmanouil Rafail Melas, 2005. "Initial Performance of Greek IPOs, Underwriter’s Reputation and Oversubscription," Finance 0512023, EconWPA. [Downloadable!]
  5. Qi Huang & Richard M. Levich, 1999. "Underpricing of New Equity Offerings by Privatized Firms: An International Test," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-075, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  6. Maher Kooli & Jean-Marc Suret, 2001. "The Underpricing of Initial Public Offerings: Further Canadian Evidence," CIRANO Working Papers 2001s-50, CIRANO. [Downloadable!]
  7. Berglund, T., 1994. "The Pricing of Initial Public Offerings : A Simple Model," Research Memorandum 673, Tilburg University, Faculty of Economics and Business Administration. [Downloadable!]
  8. Padma Kadiyala & Avanidhar Subrahmanyam, 2000. "International IPOs, Market Segmentation, and Investor Recognition," University of California at Los Angeles, Anderson Graduate School of Management 1078, Anderson Graduate School of Management, UCLA. [Downloadable!]
  9. Carol J. Simon, 1989. "The Role of Reputation in the Market for Initial Public Offerings," UCLA Economics Working Papers 569, UCLA Department of Economics. [Downloadable!]
  10. Ljungqvist, Alexander P, 2003. "Conflicts of Interest and Efficient Contracting in IPOs," CEPR Discussion Papers 4163, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Kenji Kutsuna & Richard L. Smith, . "Issue Cost and Method of IPO Underwriting: Japan's Change from Auction Method Pricing to Book Building," Claremont Colleges Working Papers 2000-35, Claremont Colleges. [Downloadable!]
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