IPO activity and information in secondary market prices

Rossetto, Silvia (2013) IPO activity and information in secondary market prices. Annals of Finance, 4 (2). pp. 667-687.

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Official URL: http://tse-fr.eu/pub/28623

Abstract

This paper explores the link between IPO underpricing and financial markets. In my model the IPO is a mean for a capital constrained initial investor to exit and thereby to raise funds for a new investment opportunity. This investor is privately informed vis-a-vis outside investors about the profitability of the new opportunity and the quality of the firm to be offered in the IPO. He can then use the offer price and the fraction of shares sold as signals of his private information. The model shows that underpricing is not only linked to firm’s characteristics, i.e. firm value, but to elements external to the firm, i.e. new investment profitability and financial markets characteristics. In particular higher market efficiency reduces the cost of listing. This results in lower underpricing and the listing of more valuable firm. Similarly, a higher lower bound of the new investment’s profitability reduces the information asymmetry and hence reduces underpricing and widens the range of firms listed.

Item Type: Article
Language: English
Date: November 2013
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse), TSM Research (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:51
Last Modified: 26 Mar 2018 15:42
OAI ID: oai:tse-fr.eu:28623
URI: http://publications.ut-capitole.fr/id/eprint/16610

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