The Overpricing Problem: Moral Hazard and Franchises
AbstractWe hypothesize that moral hazard is an important factor in explaining the under performance of firms, identified by Ritter (1991), following initial public offerings (IPOs). We test this hypothesis by comparing post-IPO returns of franchised and non-franchised firms. Franchised IPOs, whose franchise agreements mitigate the moral hazard problems that arise from the dilution of ownership following an IPO, outperform their non-franchised, matched counterpart IPOs over five years in the aftermarket.
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Bibliographic InfoPaper provided by University of Alberta, Department of Economics in its series Working Papers with number 2012-2.
Length: 23 pages
Date of creation: 01 Jan 2012
Date of revision:
IPO; moral hazard; overpricing; franchises;
Find related papers by JEL classification:
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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