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Reforming the US IPO market: lessons from history and theory

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  • Robert Wright

Abstract

The current US IPO market is inefficient and unfair. To protect their own balance sheets, US investment banks systematically underprice offerings. To ration the cheap securities, the investment banks utilize various nefarious nonprice rationing techniques, including kickbacks. Regulators should reform the market by loosening restrictions against issuers. The early history of the market (1781-1861) shows that unregulated IPO markets can function efficiently. Early US corporations successfully sold equities directly to investors without the aid of intermediaries because they could overcome information asymmetry cheaply. Today, the Information Revolution is again decreasing the cost of reducing information asymmetry between investors and issuers. Regulators could improve upon the past, however, by allowing the market to price ration new shares via an auction method.

Suggested Citation

  • Robert Wright, 2002. "Reforming the US IPO market: lessons from history and theory," Accounting History Review, Taylor & Francis Journals, vol. 12(3), pages 419-437.
    • Handle: RePEc:taf:acbsfi:v:12:y:2002:i:3:p:419-437
    DOI: 10.1080/09585200210164584
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    References listed on IDEAS

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    1. Abe de Jong & Wilco Legierse, 2022. "What causes hot markets for equity IPOs? An analysis of initial public offerings in the Netherlands, 1876–2015 [Market timing and capital structure]," European Review of Economic History, European Historical Economics Society, vol. 26(2), pages 208-233.

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