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Linking theories of incomplete contracts to empirics in IPO contracting

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  • Kim, Yoonha

Abstract

I examine the IPO underpricing phenomenon through the lens of incomplete contracts, where holdup is measured with the degree of IPO underpricing. Competing theories set forth a reason for why one type of IPO contracting (Firm Commitment Offering) is a more efficient contract than another (Best Efforts Offering). In particular, I highlight how i) allocation of bargaining power and ii) default option in the renegotiation process can be mapped to key features of the contracts. This paper demonstrates the general applicability of contract theories to study a well-known phenomenon of IPO underpricing.

Suggested Citation

  • Kim, Yoonha, 2021. "Linking theories of incomplete contracts to empirics in IPO contracting," Finance Research Letters, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316895
    DOI: 10.1016/j.frl.2020.101875
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    References listed on IDEAS

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    Cited by:

    1. Xuan, Ziyue & Guo, Wenting & Lan, Faqin, 2023. "Underwriters interest binding and IPO underpricing," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Incomplete contracts; Renegotiation design; Bargaining; Initial Public Offerings; IPO underpricing; Financial intermediaries;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services

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