Abstract

http://ssrn.com/abstract=1942940
 
 

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The Pricing of IPO Services and Issues: Theory and Estimation


Richard Lowery


University of Texas-Austin

Ari Choi Kang


University of Texas at Austin - Department of Finance

October 12, 2011

AFA 2013 San Diego Meetings Paper

Abstract:     
By modeling the market for IPOs as a repeated game with imperfect monitoring, we establish that collusion among underwriters explains the concentration of spreads at 7%, along with other characters of the data on spreads. Furthermore, the structure of optimal spreads in the model explains the existence and quantitative characteristics of underpricing in the market for IPO shares. We estimate the model by deriving moment conditions from both underpricing and spreads. Our estimates indicate that IPOs destroy value on average over the sample period 1985-2007. This result, however, is driven primarily by the dot-com era. Excluding this period, IPOs appear to increase value.

Number of Pages in PDF File: 52

Keywords: IPOs, underpricing

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Date posted: October 12, 2011 ; Last revised: March 17, 2012

Suggested Citation

Lowery, Richard and Kang, Ari Choi, The Pricing of IPO Services and Issues: Theory and Estimation (October 12, 2011). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1942940 or http://dx.doi.org/10.2139/ssrn.1942940

Contact Information

Richard Lowery (Contact Author)
University of Texas-Austin ( email )
Red McCombs School of Business
Austin, TX 78712
United States
Ari Choi Kang
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
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