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Best Efforts vs. Firm Commitment Initial Public Offerings: Evidence on the Market Feedback Theory

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  • Ann E. Sherman

    (Department of Finance, University of Minnesota, Minneapolis, USA)

Abstract

This paper documents the differences between best efforts and firm commitment U.S. IPOs and looks for evidence of the Sherman (1992) market feedback theory. A probit model of the contract choice is estimated. Best efforts offerings are shown to be, on average, smaller offerings from smaller, younger companies, many of them start-ups. They have higher average initial returns and a higher variance of initial returns, and they are less likely to include shares sold by insiders. The data is consistent with the implications of the market feedback theory.

Suggested Citation

  • Ann E. Sherman, 1999. "Best Efforts vs. Firm Commitment Initial Public Offerings: Evidence on the Market Feedback Theory," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 399-417.
    • Handle: RePEc:wsi:rpbfmp:v:02:y:1999:i:03:n:s0219091599000217
    DOI: 10.1142/S0219091599000217
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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