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Signalling quality in a developing capital market: underwriting, security choice and disclosure in Australian equity issuances, 1920-1939


  • Grant Fleming
  • Zhangxin (Frank) Liu
  • David Merrett
  • Simon Ville


Equity investors face imperfect information about the quality of the firm that is raising capital. Modern capital markets provide safeguards for investors through plentiful information sources and market regulations that help to prevent adverse selection. In developing markets that lack these safeguards, firms may attempt to attract funds by signalling their reputation to potential investors. We examine the effectiveness of three signalling techniques in the Australian capital market during its early rapid growth phase in the interwar period. Using percentage of offered capital raised as a measure of success, we find that the use of underwriters was an important positive signal to investors who also differentiated between IPOs and SEOs, but that the form of security offered by firms made little or no difference.

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  • Grant Fleming & Zhangxin (Frank) Liu & David Merrett & Simon Ville, 2019. "Signalling quality in a developing capital market: underwriting, security choice and disclosure in Australian equity issuances, 1920-1939," CEH Discussion Papers 03, Centre for Economic History, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:hpaper:075

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    equity issues; information asymmetries; market signalling; underwriters; Australian capital market;

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