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Uncertainty, prospectus content, and the pricing of initial public offerings

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  • Crain, Nicholas
  • Parrino, Robert
  • Srinivasan, Raji

Abstract

This study reports evidence on the relation between the pre-market due diligence and book-building processes in determining initial public offering (IPO) share prices. The evidence suggests that there is a complementarity between these processes that has not been discussed in the literature. We find that when there is greater uncertainty regarding the value of the shares, more information of the type that investors are likely to have a comparative advantage in evaluating tends to be included in the offering prospectus prior to the roadshow. The increase in these disclosures is, in turn, associated with greater information discovery during book-building.

Suggested Citation

  • Crain, Nicholas & Parrino, Robert & Srinivasan, Raji, 2021. "Uncertainty, prospectus content, and the pricing of initial public offerings," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 160-182.
    • Handle: RePEc:eee:empfin:v:64:y:2021:i:c:p:160-182
    DOI: 10.1016/j.jempfin.2021.08.007
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    More about this item

    Keywords

    Initial public offering; Underpricing; Investment banking;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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