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Leaders and followers in hot IPO markets

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  • Banerjee, Shantanu
  • Güçbilmez, Ufuk
  • Pawlina, Grzegorz

Abstract

We model the dynamics of going public within an IPO wave. The model predicts that firms with better growth opportunities can find it optimal to go public early and accept underpricing of their issues to signal quality. Data supports this prediction as, on average, early movers underprice their issues significantly more and we show that leaders (early movers with high underpricing) obtain much higher valuations when going public than other IPO firms. Furthermore, after going public, leaders invest significantly more, their sales grow faster, and their profitability remains higher compared to other IPO firms.

Suggested Citation

  • Banerjee, Shantanu & Güçbilmez, Ufuk & Pawlina, Grzegorz, 2016. "Leaders and followers in hot IPO markets," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 309-334.
  • Handle: RePEc:eee:corfin:v:37:y:2016:i:c:p:309-334
    DOI: 10.1016/j.jcorpfin.2016.01.004
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    Cited by:

    1. repec:eee:finlet:v:22:y:2017:i:c:p:146-152 is not listed on IDEAS
    2. Lukas, Elmar & Welling, Andreas, 2017. "Efficient non-cooperative bargaining despite keeping strategic information private," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 287-294.
    3. Michi Nishihara, 2016. "Selling out or going public? A real options signaling approach," Discussion Papers in Economics and Business 16-28, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

    More about this item

    Keywords

    IPO cycles; Underpricing; Adverse selection; Signaling;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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