ISSN:
1573-7179
Keywords:
Initial public offerings
;
underpricing
;
adverse selection
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract In this paper we generalize Rock's theory regarding the underpricing of IPOs. In Rock's model, informed investors have a firm-specific informational advantage pertaining to a firm's cash flow. We derive the new results that the level of beta and the size of the market risk premium positively affect underpricing. These implications extend the adverse selection theory and further distinguish this theory from the current state of signalling theories of underpricing. The results put the “hot and cold” issue markets phenomenon in a theoretical context. Empirical results are consistent with the theoretical propositions and provide support for Rock's theory of underpricing.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF02407007
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