Industrial Diversification and Underpricing of Initial Public Offerings
Thomas Jason Boulton
Indiana University - Kelley School of Business - Department of Finance
Chad J. Zutter
University of Pittsburgh - Finance Group
October 3, 2007
Financial Management, Vol. 42, No. 3, 2013
Diversified IPOs, firms reporting more than one business segment at the time of going public, experience less underpricing than do IPOs by focused issuers. We explore two explanations for this phenomenon. Diversification may benefit IPO firms by reducing information asymmetries and hence, lowering underpricing costs. Alternatively, higher quality focused firms may underprice their shares more to signal their quality to the market. Though we find at least some evidence consistent with each explanation, a majority of the evidence favors a signaling story.
Number of Pages in PDF File: 46
Keywords: Diversification, Initial Public Offerings, IPO Underpricing
JEL Classification: G24, G30, G32
Date posted: October 3, 2007 ; Last revised: August 11, 2014
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