Expected Underpricing, Corporate Control and the Choice of Issuance Mechanism in Unseasoned Equity Markets
University of New South Wales, School of Banking & Finance
31 Pages Posted: 12 Sep 2001
Date Written: September 10, 2001
We examine the choice of issuance mechanism for 833 unseasoned equity issues (the choice between initial public offers (IPOs) and direct placements (DPs)) prior to exchange listing. Using unique Australian data and incorporating interrelated decisions, we find that corporate control concerns surrounding post-listing ownership structures and underpricing differences between IPOs and DPs play an important role. Furthermore, debt market explanations of the issuance mechanism decision (including transaction costs and information asymmetry) are also relevant in unseasoned equity markets. Importantly, the choice of issuance mechanism and the underpricing, issue size and corporate control decisions are interrelated, and neglecting this interrelatedness significantly biases the results.
Keywords: Issuance mechanisms, corporate control, underpricing, flotation method, initial public offers, IPOs, placements
JEL Classification: G14, G24, G32, G38
Suggested Citation: Suggested Citation