Investment Bankers and IPO Pricing: Does Prospectus Information Matter?

Posted: 17 Nov 2009

See all articles by Catherine M. Daily

Catherine M. Daily

Purdue University - Krannert School of Management

S. Trevis Certo

Arizona State University (ASU)

Dan R. Dalton

Indiana University - Kelley School of Business - Management & Entrepreneurship

Date Written: 2005

Abstract

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

Suggested Citation

Daily, Catherine M. and Certo, S. Trevis and Dalton, Dan R., Investment Bankers and IPO Pricing: Does Prospectus Information Matter? (2005). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506788

Catherine M. Daily (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
317-494-4415 (Phone)
317-494-0818 (Fax)

S. Trevis Certo

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Dan R. Dalton

Indiana University - Kelley School of Business - Management & Entrepreneurship ( email )

Bloomington, IN 47405
United States
812-855-8489 (Phone)
812-855-8983 (Fax)

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