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.

Text (dp316) - Published Version Download (1MB)

• https://www.fmg.ac.uk/publications/discu...

Abstract

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:	https://www.fmg.ac.uk/
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
URI:	http://eprints.lse.ac.uk/id/eprint/119129

Actions (login required)

View Item