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Firm Value and the Choice of Offering Method in Initial Public Offerings

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  • NANCY L. BOWER

Abstract

A firm raising capital in an initial public offering faces the problems of choosing between a firm‐commitment and a best‐efforts offering and of how to convey information about its value to potential investors. The offering method chosen affects both the firm's cost of obtaining capital and investors' perceptions about firm value. A partially pooling, partially separating equilibrium is found where high‐valued firms have information about their values revealed in a firm‐commitment offering, while low‐valued firms use best‐efforts offerings and are unable to distinguish themselves from other firms.

Suggested Citation

  • Nancy L. Bower, 1989. "Firm Value and the Choice of Offering Method in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(3), pages 647-662, July.
    • Handle: RePEc:bla:jfinan:v:44:y:1989:i:3:p:647-662
    DOI: 10.1111/j.1540-6261.1989.tb04383.x
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    Cited by:

    1. Marc Goergen & Arif Khurshed & Ram Mudambi, 2006. "The Strategy of Going Public: How UK Firms Choose Their Listing Contracts," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(1‐2), pages 79-101, January.
    2. André F. Gygax & Stephanie Ong, 2011. "What Do Investment Banks Truly Bring to the Table?," Abacus, Accounting Foundation, University of Sydney, vol. 47(2), pages 121-157, June.
    3. Hsuan-Chi Chen & Sheng-Ching Wu, 2015. "Who Makes the Choice on IPO Underwriting Methods? Issuers Versus Underwriters," Financial Management, Financial Management Association International, vol. 44(4), pages 753-783, October.

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