Information Precision and IPO Pricing
University of Utah - Department of Finance
January 6, 2012
Journal of Corporate Finance, Forthcoming
This paper investigates the role of information precision in IPO pricing. The model shows that more precise information will exert more influence on the offer price. In strong support of the model, I find that the proportion of the industry return during the waiting period that is incorporated into the offer price increases with a proxy for the precision of the industry return as a measure of the change in the IPO firm's value during the waiting period. The model and the empirical findings enhance our understanding of the partial adjustment phenomenon: noisy information will be partially incorporated into the offer price.
Number of Pages in PDF File: 46
Keywords: Information precision, IPOs, partial adjustment, price adjustment, share adjustment
JEL Classification: G14, G24, G32
Date posted: April 27, 2010 ; Last revised: January 12, 2012
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