Investment Bankers and IPO Pricing: Does Prospectus Information Matter?
Posted: 17 Nov 2009
Date Written: 2005
The factors that investment bankers take into account when pricing IPO firms are examined.Following a review of the literature on investment bankers and the initial public offering process, it is hypothesized that larger, older firms with sizable, prestigious boards, pre-IPO profitability, and higher levels of venture capital equity and CEO-retained equity are positively associated with IPO offer price. Founder-led CEO firms, however, are negatively associated with IPO offer price.Analyses of the IPO prospectuses of 192 firms that undertook IPOs in 1996 and 1997 are performed to test these hypotheses.Surprisingly, the data offer negligible support for the hypotheses. None of the factors is related to IPO offer price.These results suggest that investment bankers may not find IPO prospectus information (at least the variables investigated in this study) particularly helpful when determining IPO offer prices and price spreads. (SAA)
Keywords: IPO pricing, Experimental/primary research, Prospectus information, Founders, Market value, Firm age, Firm size, Chief executive officers (CEOs), Equity, Initial public offerings (IPO), Public offerings, Boards of directors, Investment banks
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