DIFFERENTIAL INFORMATION AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: AUSTRALIAN EVIDENCE

DIFFERENTIAL INFORMATION AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: AUSTRALIAN EVIDENCE This paper provides evidence on underpricing in Australia using 340 industrial initial public offerings over the period 1980 to 1990. It aims to explain why underpricing is consistent with rational behaviour by focusing on differential information across IPO firms. We measure differential information along two dimensions, the quality and the quantity of information. We propose that the quality of information is reflected in the reputation of independent advisers to the preparation of the issuing firm's prospectus. Three such independent external advisers are examined: the investigating accountant, the underwriter, and the expert. The results provide strong support for the reputation effect of the underwriter on underpricing. Although there is evidence showing a negative relation between underpricing and the reputation of the investigating accountant and the expert, it is not significant. Our results also support the differential quantity of information hypothesis. Firms with more information available are, on average, less underpriced. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

DIFFERENTIAL INFORMATION AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: AUSTRALIAN EVIDENCE

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Publisher
Wiley
Copyright
© 1995 Accounting and Finance Association of Australia and New Zealand
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/j.1467-629X.1995.tb00278.x
Publisher site
See Article on Publisher Site

Abstract

This paper provides evidence on underpricing in Australia using 340 industrial initial public offerings over the period 1980 to 1990. It aims to explain why underpricing is consistent with rational behaviour by focusing on differential information across IPO firms. We measure differential information along two dimensions, the quality and the quantity of information. We propose that the quality of information is reflected in the reputation of independent advisers to the preparation of the issuing firm's prospectus. Three such independent external advisers are examined: the investigating accountant, the underwriter, and the expert. The results provide strong support for the reputation effect of the underwriter on underpricing. Although there is evidence showing a negative relation between underpricing and the reputation of the investigating accountant and the expert, it is not significant. Our results also support the differential quantity of information hypothesis. Firms with more information available are, on average, less underpriced.

Journal

Accounting & FinanceWiley

Published: May 1, 1995

References

  • Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings
    Welch, Welch

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