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Clustering of initial public offerings, information revelation and underpricing

Hoffmann-Burchardi, Ulrike (1999) Clustering of initial public offerings, information revelation and underpricing. Financial Markets Group Discussion Papers (316). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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By providing an analysis of sequential going-public decisions the paper outlines conditions under which "hot issue markets" arise, i.e. under which the likelihood of a second initial public offering increases after a first firm has gone public. Two effects can trigger the rise of hot issue markets in a setting with asymmetric and costly information about both firm quality and industry prospects. The risk-averse entrepreneur can be subject to risk-induced selling pressure because of uncertain industry prospects conveyed by a first IPO in the industry. Also, investors can free-ride on the industry news, and increase their valuation for a second firm by abstaining from further costly information production. Finally, the model offers an explanation for the empirical finding that hot issue markets exhibit a higher degree of underpricing than cold issue markets.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 1999 The Author
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited: 04 Jul 2023 14:15
Last Modified: 16 Sep 2023 00:02

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