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Industrial Diversification and Underpricing of Initial Public Offerings
Author(s) -
Boulton Thomas J.,
Smart Scott B.,
Zutter Chad J.
Publication year - 2013
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12012
Subject(s) - initial public offering , diversification (marketing strategy) , issuer , business , monetary economics , value (mathematics) , public offering , information asymmetry , enterprise value , accounting , financial system , finance , economics , marketing , machine learning , computer science
The initial public offerings (IPOs) of diversified firms, those reporting more than one business segment at the time they go public, experience less underpricing than do IPOs by focused issuers. We explore two explanations for this phenomenon. Diversification may benefit IPO firms by reducing information asymmetries and therefore, lowering underpricing costs. Alternatively, high quality focused firms may be signaling their value by underpricing their shares to a greater degree. Though we find at least some evidence consistent with each explanation, a majority of the evidence favors signaling.