Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189280 
Year of Publication: 
1999
Series/Report no.: 
Queen's Economics Department Working Paper No. 990
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
We explain why underpricing in IPOs can be large in magnitude and clustered, using a signalling model where firms have private information about their qualities (high or low). A novel feature is that a firm, if perceived by the market as high quality, benefits from the industry's publicity which is an increasing function of the amount of IPO underpricing by all high-quality firms in the industry. Despite the potential free-rider problem created by the industry's publicity, we show that a high-quality firm chooses to underprice its own IPO as the best response to other high-quality firms' underpricing. Thus, IPO underpricing is clustered.
Subjects: 
Initial public offering
Signalling
Externality
Multiple equilibria
JEL: 
G30
D82
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.