The Impact of Third-Party Certification on Italian Initial Public Offerings
46 Pages Posted: 5 Mar 2015
Date Written: February 2015
Firms undergoing an IPO can use third-party certification to reduce information asymmetries and uncertainty. In this paper, we identify private equity firms, underwriting banks and auditors as third-party certifiers. Previous literature has shown that venture capital backing and the association with prestigious venture capitalists, underwriters and auditors are important signals of the quality of a firm at IPO. We test the certification hypothesis on the Italian market and provide evidence to the contrary: private equity-backed firms and firms backed by more reputable private equity firms and underwriters are not better off than others. Only association with Big-Four auditors helps issuing firms in reducing underpricing and wealth loss for pre-existing shareholders when going public.
Keywords: certification, signaling theory, initial public offerings
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