Publicity and the Clustering of IPO Underpricing
AbstractWe explain why underpricing in IPOs can be large in magnitude and clustered, using a signalling model where firms have private information about their qualities (high or low). A novel feature is that a firm, if perceived by the market as high quality, benefits from the industry's publicity which is an increasing function of the amount of IPO underpricing by all high-quality firms in the industry. Despite the potential free-rider problem created by the industry's publicity, we show that a high-quality firm chooses to underprice its own IPO as the best response to other high-quality firms' underpricing. Thus, IPO underpricing is clustered.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 990.
Length: 36 pages
Date of creation: Jul 1999
Date of revision:
Initial public offering; Signalling; Externality; Multiple equilibria;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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- Cao, Melanie & Shi, Shouyong, 2006.
"Signaling in the Internet craze of initial public offerings,"
Journal of Corporate Finance,
Elsevier, vol. 12(4), pages 818-833, September.
- Cao Melanie & Shouyong Shi, 2002. "Signalling in the Internet Craze of Initial Public Offerings," Working Papers shouyong-02-03, University of Toronto, Department of Economics.
- Subadar Agathee, Ushad & Brooks, Chris & Sannassee, Raja Vinesh, 2012. "Hot and cold IPO markets: The case of the Stock Exchange of Mauritius," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 168-192.
- Maher Kooli & Jean-Marc Suret, 2001. "The Underpricing of Initial Public Offerings: Further Canadian Evidence," CIRANO Working Papers 2001s-50, CIRANO.
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