IPO Information Aggregation and Underwriter Quality

35 Pages Posted: 9 Mar 2008 Last revised: 29 Dec 2009

See all articles by Wei Wang

Wei Wang

Cleveland State University

Chris Yung

University of Virginia - McIntire School of Commerce

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2008

Abstract

A key distinction between some models of IPO pricing (e.g., auctions and bookbuilding) and others (e.g., fixed-priced models) is whether price discovery occurs in the primary market or the secondary market. We show that higher investment bank reputation is associated with 1) more active filing price revisions and 2) reduced secondary market return variability. In fact, file price revisions of non-reputable banks show strong clustering on exactly zero dollars. Hence, reputable underwriters resolve a greater proportion of uncertainty before the issue goes public. Finally, the well-documented partial adjustment phenomenon - often attributed to information aggregation - is almost exclusively due to the behavior of reputable underwriters. Taken together, this evidence suggests that theoretical models of primary market information aggregation are better suited for reputable underwriters.

Keywords: Initial Public Offerings, Price Discovery, Information Aggregation

JEL Classification: G14, G24, D82

Suggested Citation

Wang, Wei and Yung, Chris, IPO Information Aggregation and Underwriter Quality (January 1, 2008). Available at SSRN: https://ssrn.com/abstract=1103284 or http://dx.doi.org/10.2139/ssrn.1103284

Wei Wang

Cleveland State University ( email )

Cleveland, OH 44115
United States

Chris Yung (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-242-0836 (Phone)

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