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Information Asymmetry and Investor Valuations of Initial Public Offerings: Two Dimensions of Organizational Reputation as Stock Market Signals

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  • Liu, Yang
  • Cheng, Peng
  • OuYang, Zhe
  • Wang, Ao

Abstract

The uncertainty and information asymmetry that surround initial public offering firms (IPOs) often introduce difficulties for potential investors to discern organizational value, thereby leading to ‘underpricing’. Using the signaling theory, we investigate the role of organizational reputation in the underpricing of IPOs. We analyze 463 initial public offerings in China from the period of 2010 to 2016 and find that being known for quality and generalized favorability dimensions of reputation are negatively related with underpricing on the first day of trading. In addition, we find that the negative effects of organizational reputation on underpricing are mediated by investor attention.

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  • Liu, Yang & Cheng, Peng & OuYang, Zhe & Wang, Ao, 2020. "Information Asymmetry and Investor Valuations of Initial Public Offerings: Two Dimensions of Organizational Reputation as Stock Market Signals," Management and Organization Review, Cambridge University Press, vol. 16(4), pages 945-964, October.
    • Handle: RePEc:cup:maorev:v:16:y:2020:i:4:p:945-964_13
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    Cited by:

    1. Massimo G. Colombo & Benedetta Montanaro & Silvio Vismara, 2023. "What drives the valuation of entrepreneurial ventures? A map to navigate the literature and research directions," Small Business Economics, Springer, vol. 61(1), pages 59-84, June.

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