Uncertainty, Prospectus Content, and the Pricing of Initial Public Offerings

46 Pages Posted: 8 Dec 2017

See all articles by Nicholas Crain

Nicholas Crain

University of Melbourne - Department of Finance

Robert Parrino

University of Texas at Austin - Department of Finance

Raji Srinivasan

University of Texas at Austin - Red McCombs School of Business

Date Written: December 1, 2017

Abstract

We investigate how information is incorporated into initial public offering (IPO) share prices. We find that greater uncertainty about the value of a firm’s shares is associated with more prospectus disclosures concerning the firm’s competitive environment and a more conservative anticipated price range. The evidence suggests that potential investors help evaluate and incorporate information disclosed in the prospectus into the IPO price through the book-building process. However, not all of the relevant information is reflected in the IPO price. The evidence also suggests that investors receive compensation for their price discovery efforts through underpricing in the IPO.

Keywords: Initial Public Offering, Underpricing, Investment Banking

JEL Classification: G32, G24

Suggested Citation

Crain, Nicholas and Parrino, Robert and Srinivasan, Raji, Uncertainty, Prospectus Content, and the Pricing of Initial Public Offerings (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3082429 or http://dx.doi.org/10.2139/ssrn.3082429

Nicholas Crain

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Robert Parrino (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5788 (Phone)
512-471-5073 (Fax)

Raji Srinivasan

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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