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Information Asymmetry And The Underpricing Of Initial Public Offerings: Further Empirical Evidence

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  • C. Sherman Cheung
  • Itzhak Krinsky

Abstract

Information Asymmetry is usually assumed in most explanations of the underpricing of initial public offerings (IPOs). In Baron's (1982) model, the underwriter is better informed than the issuing firm concerning the demand for the IPO. The greater uncertainty associated with the demand will lead to a greater underpricing due to the enhanced value of the underwriter's expertise. In the case that the issuer is also an informed investment banker, Baron's hypothesis predicts no underpricing. Our results based on Canadian investment bankers do not support Baron's hypothesis.

Suggested Citation

  • C. Sherman Cheung & Itzhak Krinsky, 1994. "Information Asymmetry And The Underpricing Of Initial Public Offerings: Further Empirical Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(5), pages 739-747, July.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:5:p:739-747
    DOI: 10.1111/j.1468-5957.1994.tb00346.x
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    References listed on IDEAS

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    3. Baron, David P, 1982. "A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues," Journal of Finance, American Finance Association, vol. 37(4), pages 955-976, September.
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