Expected Underpricing, Corporate Control and the Choice of &#x0D;
Issuance Mechanism in Unseasoned Equity Markets

Sharpe, Ian G.; Woo, Li-Anne

doi:10.2139/ssrn.283034

Cited by 2 publications

(1 citation statement)

References 27 publications

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“…Recent studies that examine the choice of issuance methods show that quality firms experiencing a greater degree of information asymmetry tend to use private placements over public offerings in raising external capital to reduce the costs of adverse selection and information production (Maksimovic and Pichler 2006). Sharpe and Woo (2005) find that the likelihood of using private placements increases with the degree of information asymmetry and the reputation of privately held firms.…”

Section: Information Asymmetry Explanationmentioning

confidence: 98%

Underpricing of Ipos That Follow Private Placement

Cai

Lee

Sharma

2011

Journal of Financial Research

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In this study we examine the underpricing of initial public offerings (IPOs) by firms that have private placements of equity before their IPOs (PP IPO firms). We find that PP IPOs are associated with significantly less underpricing than their peers. Furthermore, PP IPOs are associated with lower underwriting spreads, more reputable underwriting syndicates, and greater postissue analyst coverage as compared to IPOs that are issued by their industry peers under similar market conditions. Consistent with the implications of the information asymmetry explanation for IPO underpricing, our findings suggest that companies could benefit by conveying their quality via successful pre‐IPO private placements that help reduce the cost of going public.

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Section: Information Asymmetry Explanationmentioning

confidence: 98%