Is the IPO pricing process efficient?

Is the IPO pricing process efficient? This paper investigates underwriters’ treatment of public information throughout the IPO pricing process. Two key findings emerge. First, public information is not fully incorporated into the initial price range. While the economic magnitude of the bias is small, it is puzzling because it is not clear who benefits from it. Further, it indicates that the filing range midpoint is not an unbiased predictor of the offer price, as prior literature has assumed. Second, while public information is similarly not fully incorporated into the final offer price, the small economic significance of this relation indicates that the IPO pricing process is almost efficient. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Is the IPO pricing process efficient?

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Publisher
Elsevier
Copyright
Copyright © 2003 Elsevier B.V.
ISSN
0304-405x
D.O.I.
10.1016/S0304-405X(03)00205-8
Publisher site
See Article on Publisher Site

Abstract

This paper investigates underwriters’ treatment of public information throughout the IPO pricing process. Two key findings emerge. First, public information is not fully incorporated into the initial price range. While the economic magnitude of the bias is small, it is puzzling because it is not clear who benefits from it. Further, it indicates that the filing range midpoint is not an unbiased predictor of the offer price, as prior literature has assumed. Second, while public information is similarly not fully incorporated into the final offer price, the small economic significance of this relation indicates that the IPO pricing process is almost efficient.

Journal

Journal of Financial EconomicsElsevier

Published: Jan 1, 2004

References

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