IPO Pricing: Informational Inefficiency and Misallocation in Capital Market
32 Pages Posted: 1 Dec 2008
Date Written: November 18, 2008
Extant literature is not unequivocal about IPO pricing. It is almost silent about the misallocation in the capital market. IPO pricing is mostly argued from the point of view of listing gains/losses.
This paper seeks to explain the process and outcomes of IPO pricing in the capital market with the help of a basic model. With the help of certain cases it attempts to show that asymmetric information and informational inefficiency lead to misallocation of capital, adverse selection costs and moral hazard costs.
Keywords: Initial public offerings, Book-building, Price discovery, True Price, Misallocation, Informational inefficiency
JEL Classification: G2, G3, K2
Suggested Citation: Suggested Citation