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

See all articles by Ian G. Sharpe

Ian G. Sharpe

Australian Prudential Regulation Authority; UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Li-Anne Elizabeth Woo

Bond University - Finance; UNSW Australia Business School, School of Banking and Finance

Date Written: September 10, 2001

Abstract

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

Sharpe, Ian G. and Woo, Li-Anne Elizabeth, Expected Underpricing, Corporate Control and the Choice of Issuance Mechanism in Unseasoned Equity Markets (September 10, 2001). University of New South Wales, School of Banking & Finance, Available at SSRN: https://ssrn.com/abstract=283034 or http://dx.doi.org/10.2139/ssrn.283034

Ian G. Sharpe (Contact Author)

Australian Prudential Regulation Authority ( email )

Level 26, 400 George Street
Sydney, NSW 2000
Australia
612 92103638 (Phone)

UNSW Australia Business School, School of Banking and Finance ( email )

Kensington
Quadrangle Building Level 3
Sydney NSW 2052
Australia
61 2 9385 5856 (Phone)
61 2 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Li-Anne Elizabeth Woo

Bond University - Finance ( email )

Gold Coast, QLD 4229
Australia

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
61-2-9385-5862 (Phone)
61-2-9385-6347 (Fax)

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