Signaling in the Internet craze of initial public offerings |
| |
| Institution: | 1. Schulich School of Business, York University, 4700 Keele Street, Toronto, Ontario, Canada, M3J 1P3;2. Department of Economics, University of Toronto, Toronto, Ontario, Canada;1. Sao Paulo School of Economics – FGV, Rua Itapeva, 474, Sao Paulo – SP, Brazil;2. Michigan State University, United States;1. European University in St. Petersburg, 3 Gagarinskaya Street, St. Petersburg, 191187, Russia;2. St. Petersburg Institute for Economics and Mathematics (Russian Academy of Sciences), 1 Tchaikovsky Street, St. Petersburg, 191187, Russia;3. Department of Economics and Finance, Montclair State University, Montclair, NJ 07043, USA;1. Department of Strategy and Policy, NUS Business School, Mochtar Riady Building, #7-76, 15 Kent Ridge Drive, Singapore 119245, Singapore;2. Vancouver School of Economics, University of British Columbia, 997 - 1873 East Mall, Vancouver, Canada BC V6T 1Z1;1. Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442, USA;2. Department of Economics, Robins School of Business, University of Richmond, Richmond, VA 23173, USA |
| |
| Abstract: | We explain the clustering of underpricing in initial public offerings (IPOs). The model features an industry with aggregate demand uncertainty and asymmetric information about firms' quality. In the IPO market, firms can signal quality by underpricing or under-issuing new shares. Expected aggregate demand for the industry's products increases with the publicity that the industry creates through IPO underpricing. We show that asymmetric information and expectations on aggregate product demand interact with each other to generate multiple equilibria. Underpriced IPOs cluster in one equilibrium but not in the other. We use these results to explain why the clustering often occurs in particular industries, is short-lived, and is sensitive to economic conditions. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
