Industrial Diversification and Underpricing of Initial Public Offerings

Financial Management, Vol. 42, No. 3, 2013

46 Pages Posted: 3 Oct 2007 Last revised: 11 Aug 2014

Thomas Jason Boulton

Miami University

Scott Smart

Indiana University - Kelley School of Business - Department of Finance

Chad J. Zutter

University of Pittsburgh - Finance Group

Date Written: October 3, 2007

Abstract

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.

Keywords: Diversification, Initial Public Offerings, IPO Underpricing

JEL Classification: G24, G30, G32

Suggested Citation

Boulton, Thomas Jason and Smart, Scott and Zutter, Chad J., Industrial Diversification and Underpricing of Initial Public Offerings (October 3, 2007). Financial Management, Vol. 42, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=1018995 or http://dx.doi.org/10.2139/ssrn.1018995

Thomas Jason Boulton (Contact Author)

Miami University ( email )

3028 Farmer School of Business
Oxford, OH 45056
United States
(513) 529-1563 (Phone)
(513) 529-8598 (Fax)

Scott B. Smart

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Kelley School of Business
Bloomington, IN 47405
United States
812-855-3401 (Phone)
812-855-5875 (Fax)

Chad J. Zutter

University of Pittsburgh - Finance Group ( email )

352 Mervis Hall, Katz GSOB
University of Pittsburgh
Pittsburgh, PA 15260
United States
412-648-2159 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~czutter/

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