Asymmetric Information in the IPO Aftermarket

Posted: 17 Apr 2005

See all articles by Mingsheng Li

Mingsheng Li

Bowling Green State University - College of Business Administration

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics

Udomsak Wongchoti

Massey University - School of Economics and Finance

Abstract

Using the adverse selection component of the spread as a measure of asymmetric information,we investigate how asymmetric information evolves after firms go public. We find that the level of asymmetric information is lower immediately after the initial public offering (IPO) compared with its level after a period of seasoning. In addition, we test the hypothesis that the greater the underpricing of an IPO, the more information is produced in its aftermarket, and the lower the aggregate level of asymmetric information. Our results are consistent with the hypothesis and are robust after controlling for other factors.

Keywords: initial public offerings, asymmetric information, adverse selection cost

JEL Classification: G14

Suggested Citation

Li, Mingsheng and McInish, Thomas H. and Wongchoti, Udomsak, Asymmetric Information in the IPO Aftermarket. Financial Review, Vol. 40, No. 2, May 2005. Available at SSRN: https://ssrn.com/abstract=695361

Mingsheng Li (Contact Author)

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Thomas H. McInish

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-4662 (Phone)
901-678-3006 (Fax)

Udomsak Wongchoti

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

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