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Information Precision and IPO Pricing

46 Pages Posted: 27 Apr 2010 Last revised: 12 Jan 2012

Feng Zhang

University of Utah - Department of Finance

Date Written: January 6, 2012

Abstract

This paper investigates the role of information precision in IPO pricing. The model shows that more precise information will exert more influence on the offer price. In strong support of the model, I find that the proportion of the industry return during the waiting period that is incorporated into the offer price increases with a proxy for the precision of the industry return as a measure of the change in the IPO firm's value during the waiting period. The model and the empirical findings enhance our understanding of the partial adjustment phenomenon: noisy information will be partially incorporated into the offer price.

Keywords: Information precision, IPOs, partial adjustment, price adjustment, share adjustment

JEL Classification: G14, G24, G32

Suggested Citation

Zhang, Feng, Information Precision and IPO Pricing (January 6, 2012). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1596976 or http://dx.doi.org/10.2139/ssrn.1596976

Feng Zhang (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112-9303
United States

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