We treat information acquisition by potential investors in initial public offerings as endogenous. With endogenous information, the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer. We show that an investment banking syndicate is an institutional arrangement designed to avoid such a transfer. By inviting rival banks to share in the offering, a managing underwriter ensures they have a strong incentive to remain ignorant. We characterize the resulting outcome as one of symmetric ignorance. The desire to maintain symmetric ignorance is consistent with the observed passivity of nonmanaging syndicate participants.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006) Issue (Month): 6 (November) Pages: 2911-2924 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF