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The Pricing of Initial Public Offerings: A Dynamic Model with Information Production

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Author Info
Chemmanur, Thomas J

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Abstract

This paper presents an information-theoretic model of initial public offering pricing in which insiders sell stock in both the initial public offering and the secondary market, have private information about their firm's prospects, and outsiders may engage in costly information production about the firm. High-value firms, knowing they are going to pool wit h low-value firms, induce outsiders to engage in information productio n by underpricing, which compensates outsiders for the cost of produci ng information. The information is reflected in the secondary market pr ice of equity, giving a higher expected stock price for high-value firms. Copyright 1993 by American Finance Association.

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

Volume (Year): 48 (1993)
Issue (Month): 1 (March)
Pages: 285-304
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Handle: RePEc:bla:jfinan:v:48:y:1993:i:1:p:285-304

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  1. Qi Quan & Nancy Huyghebaert, 2005. "Share Issuing Privatizations in China: Determinants of Public Share Allocation and Underpricing," LICOS Discussion Papers 16205, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  2. Fohlin, Caroline, 2000. "IPO Underpricing in Two Universes: Berlin, 1882-1892, and New York, 1998-2000," Working Papers 1088, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  3. Galina Hale & Joao A. C. Santos, 2008. "Do banks price their informational monopoly?," Working Paper Series 2008-14, Federal Reserve Bank of San Francisco. [Downloadable!]
  4. Ellingsen, Tore & Rydqvist, Kristian, 1997. "The Stock Market as a Screening Device and the Decision to Go Public," Working Paper Series in Economics and Finance 174, Stockholm School of Economics. [Downloadable!]
  5. 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)
  6. Galina Hale & João A. C. Santos, 2006. "Evidence on the costs and benefits of bond IPOs," Working Paper Series 2006-42, Federal Reserve Bank of San Francisco. [Downloadable!]
  7. Joseph P.H. Fan & T.J. Wong & Tianyu Zhang, 2006. "The Emergence of Corporate Pyramids in China," CEI Working Paper Series 2005-16, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  8. Sean Nicholson & Patricia M. Danzon & Jeffrey McCullough, 2002. "Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality," NBER Working Papers 9007, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Berglund, T., 1994. "The Pricing of Initial Public Offerings : A Simple Model," Research Memorandum 673, Tilburg University, Faculty of Economics and Business Administration. [Downloadable!]
  10. Vicente Pons-Sanz, 2005. "Who benefits from IPO underpricing? Evidence form hybrid bookbuilding offerings," Working Paper Series 428, European Central Bank. [Downloadable!]
  11. Alexander Ljungqvist & Tim Jenkinson & William Wilhelm, 2001. "Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors," OFRC Working Papers Series 2001fe06, Oxford Financial Research Centre. [Downloadable!]
    Other versions:
  12. Wagner, W., 2002. "Divestment, entrepreneurial incentives and the decision to go public," Discussion Paper 47, Tilburg University, Center for Economic Research. [Downloadable!]
  13. Joseph P.H. Fan & T.J. Wong & Tianyu Zhang, 2006. "The Emergence of Corporate Pyramids in China," CEI Working Paper Series 2006-3, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  14. Francis , Bill B & Hasan , Iftekhar & Lothian , James R & Sun, Xian, 2008. "The signalling hypothesis revisited: Evidence from foreign IPOs," Research Discussion Papers 10/2008, Bank of Finland. [Downloadable!]
  15. Pandey Ajay & Kumar G. Arun, 2001. "Relative Effectiveness of Signals in IPOs in Indian Capital Markets," IIMA Working Papers 2001-09-03, Indian Institute of Management Ahmedabad, Research and Publication Department. [Downloadable!]
  16. Armando Gomes, . "Going Public with Asymmetric Information, Agency Costs, and Dynamic Trading," Rodney L. White Center for Financial Research Working Papers 4-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
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