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INFORMATION ASYMMETRY AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: FURTHER EMPIRICAL EVIDENCE
Author(s) -
Cheung C. Sherman,
Krinsky Itzhak
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00346.x
Subject(s) - initial public offering , underwriting , information asymmetry , issuer , investment banking , monetary economics , business , financial economics , value (mathematics) , investment (military) , economics , empirical evidence , actuarial science , accounting , finance , political science , philosophy , epistemology , machine learning , politics , computer science , law
Information Asymmetry is usually assumed in most explanations of the underpricing of initial public offerings (IPOs). In Baron's (1982) model, the underwriter is better informed than the issuing firm concerning the demand for the IPO. The greater uncertainty associated with the demand will lead to a greater underpricing due to the enhanced value of the underwriter's expertise. In the case that the issuer is also an informed investment banker, Baron's hypothesis predicts no underpricing. Our results based on Canadian investment bankers do not support Baron's hypothesis.