The implications of IPO underpricing for the firm and insiders: Tests of asymmetric information theories

Kennedy, Duane B.; Sivakumar, Ranjini; Vetzal, Kenneth R.

doi:10.1016/j.jempfin.2004.10.003

Cited by 51 publications

(36 citation statements)

References 38 publications

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“…On the basis of our systematic review of the IPO literature (Daily et al 2003;Kennedy et al 2006;Ljungqvist 2007;Ritter 2003Ritter , 2011Yong 2007), we include several IPO-specific controls that influence IPO outcomes. Percentage width of offer range is the offer width divided by the lowest offer price; underwriters who are uncertain about the price of an issue tend to set a wider offer range to provide greater pricing flexibility (Hanley 1993).…”

Section: Control Variablesmentioning

confidence: 99%

Organizational Debut on the Public Stage: Marketing Myopia and Initial Public Offerings

Saboo

Chakravarty²,

Grewal

2016

Marketing Science

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S uccessful initial public offerings (IPOs) provide firms with access to valuable resources, but also put pressure on firms to impress potential investors with evidence of their current well-being and prospects for future growth. To impress investors IPO firms might curtail their marketing budgets, which appears to inflate current earnings and provide evidence of current well-being. However, curtailing marketing budgets unexpectedly during an IPO may be a myopic practice, in that the immediate benefits of these budget cuts are offset by their longer-term adverse consequences on financial well-being. The extent of these adverse consequences in turn may be moderated by external firm factors, including strategic alliances and key customer relationships, and internal firm factors, such as the strategic emphasis on value creation versus value appropriation. A sample of 1,095 IPOs during 2000-2011 reveals evidence of myopic marketing practices in more than 37% of the sample. Investors seem misled during IPOs, but they correct their beliefs in the three years following the IPO and penalize these firms. The penalty for myopic marketing budgeting practices also increases with more strategic alliances and a strategic emphasis on value creation versus value appropriation, but it decreases in the presence (versus absence) of key customer relationships.Data, as supplemental material, are available at http://dx.

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Section: Control Variablesmentioning

confidence: 99%

Organizational Debut on the Public Stage: Marketing Myopia and Initial Public Offerings

Saboo

Chakravarty²,

Grewal

2016

Marketing Science

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“…They find that pre-issue managerial ownership is a determinant to explain the difference between mutual and stock insurance IPOs in the level of underpricing. Kennedy et al (2006) test six theoretical models explaining IPO underpricing, and find strong support to the entrepreneurial loss model developed by Habib and Ljungqvist (2001). Applying the behavioral theory of Loughran and Ritter (2002), Ljungqvist and Wilhelm (2005) construct a behavioral measure of CEOs' satisfaction with the underwriting performance of the IPO lead managers.…”

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confidence: 81%

Issuers’ incentives and tests of Baron’s model of IPO underpricing

Chen

Fok

Kang

2009

Rev Quant Finan Acc

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“…In particular, high-quality IPOs should use costly underpricing as a signal and they are more likely to take the money back from the table later on by having larger SEOs (Allen and Faulhaber, 1989;Grinblatt and Hwang, 1989;Welch, 1989). However, most empirical studies using modern US and German data reject this signalling model (Kennedy et al, 2006;Michaely and Shaw, 1994;Wasserfallen and Wittleder, 1994). Studies based on historical data to test the time-stability of the phenomenon are unavailable.…”

Section: Theory and Econometricsmentioning

confidence: 99%

The Underpricing of Initial Public Offerings at the Berlin Stock Exchange, 1870–96

Burhop

2011

German Economic Review

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In this article, we evaluate underpricing of initial public offerings at the Berlin Stock Exchange between 1870 and 1896. In contrast to modern data, first-day returns were extraordinary low and averaged less than 5%, even during the speculative period of the early 1870s. Moreover, standard underpricing theories based on asymmetric information, signalling mechanisms or litigation risk cannot explain underpricing. In contrast to modern markets, underpricing was higher during hot issue markets. Finally, we show that cash-flow relevant information contained in the corporate charter was readily factored in the first market price. Thus, the historical capital market differed from today's market, but seems to have been efficient.JEL classification: N23, N43, G18.

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The implications of IPO underpricing for the firm and insiders: Tests of asymmetric information theories

Cited by 51 publications

References 38 publications

Organizational Debut on the Public Stage: Marketing Myopia and Initial Public Offerings

Organizational Debut on the Public Stage: Marketing Myopia and Initial Public Offerings

Issuers’ incentives and tests of Baron’s model of IPO underpricing

The Underpricing of Initial Public Offerings at the Berlin Stock Exchange, 1870–96

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