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Reforming the US IPO market: lessons from history and theory

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  • Robert Wright
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    Abstract

    The current US IPO market is inefficient and unfair. To protect their own balance sheets, US investment banks systematically underprice offerings. To ration the cheap securities, the investment banks utilize various nefarious nonprice rationing techniques, including kickbacks. Regulators should reform the market by loosening restrictions against issuers. The early history of the market (1781-1861) shows that unregulated IPO markets can function efficiently. Early US corporations successfully sold equities directly to investors without the aid of intermediaries because they could overcome information asymmetry cheaply. Today, the Information Revolution is again decreasing the cost of reducing information asymmetry between investors and issuers. Regulators could improve upon the past, however, by allowing the market to price ration new shares via an auction method.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Accounting History Review.

    Volume (Year): 12 (2002)
    Issue (Month): 3 ()
    Pages: 419-437

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    Handle: RePEc:taf:acbsfi:v:12:y:2002:i:3:p:419-437

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    Related research

    Keywords: Investment Banking; Initial Public Offerings; Direct Public Offerings; Theory; Of; Asymmetric Information; History Of Securities Markets;

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    1. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998.
    2. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 50(1), pages 23-51, March.
    3. Olmstead, Alan L., 1972. "Investment Constraints and New York City Mutual Savings Bank Financing of Antebellum Development," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 32(04), pages 811-840, December.
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