A simple test of Baron's model of IPO underpricing

Muscarella, Chris J.; Vetsuypens, Michael R.

doi:10.1016/0304-405x(89)90074-3

Cited by 167 publications

(91 citation statements)

References 11 publications

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“…Muscarella and Vetsuypens [6] empirically tested Baron's model [5] of agency theory related argument as an evidence for observing underpricing. They studied 38 IPOs by U.S.…”

Section: Information Asymmetrymentioning

confidence: 99%

“…The literature proposes that underpricing could be attributed to information asymmetry at two levels 1) Issuer and Underwriter (Baron [5]; Muscarella and Vetsuypens [6] 2) Informed investors and Uninformed investors (Rock [1]). The review by Rhee [3] also states that other than information asymmetry a stream of literature has proposed that many times firms like to use degree of IPO underpricing as a mechanism for signaling (Allen and Faulhaber [7]; Grinblatt and Hwang [8]; and Welch [9,10]).…”

Section: Introductionmentioning

confidence: 99%

“…They find significant increase in technology driven firm issuing IPOs. Their review identified various reasons of IPO underpricing under the condition of asymmetric information (Baron [5]; Rock [1]; Muscarella and Vetsuypens [6]; Welch [9,10]; Allen and Faulhaber [7]; Chemmanur [27]; Jegadeesh, Weinstein, and Welch [28]; Michaely and Shaw [29]; Koh and Walter [30] ) and symmetric information (Tinic [17]; Hughes and Thakor [18]; Drake and Vetsuypens [31]; Lowry and Shu [32]; Boehmer and Fishe [33]; Krigman, Shaw, and Womack [34]; Ellis [35] and Booth and Chua [36] ). This review paper also discusses the literature that addressed the allocation bias in the IPO process.…”

Section: Introductionmentioning

confidence: 99%

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Underpricing of Initial Public Offerings: A Literature Review

Katti¹,

Phani²

2016

ujaf

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Rock's [1] theory ascertains information asymmetry as a primary reason to answer "Why New Issues are Underpriced?" Theoretical construct of this seminal work is based on information asymmetry between various classes of investors. Empirical manifestation of this theoretical explanation is based on considering different proxy measures to quantify the information asymmetry as perceived by various researchers over the past three decades. The growing IPO literature also explained underpricing with the help of agency theory, signaling, behavioural theories etc. Empirical research has identified various determinants of IPO underpricing. The influence of various factors predominantly depends upon country specific regulations, market microstructure and price discovery mechanism. Although many factors have justified the degree of underpricing, controlling for these factors does not completely eliminate the degree of under pricing. The justification of residual underpricing through these factors has limitations in terms of failure to completely explain the IPO underpricing. The paper reviews different factors presented in the extant literature that influence the price discovery mechanism of initial public offerings (IPO) in various economies. We conclude that the degree of underpricing is dynamic and various markets forces interact simultaneously in observing the variation in pricing the new equity issues. This paper points out the significance of regulatory framework in explaining the degree of IPO underpricing.

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“…Muscarella and Vetsuypens [6] empirically tested Baron's model [5] of agency theory related argument as an evidence for observing underpricing. They studied 38 IPOs by U.S.…”

Section: Information Asymmetrymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Underpricing of Initial Public Offerings: A Literature Review

Katti¹,

Phani²

2016

ujaf

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“…Other studies, however, do not find size to be significantly related to initial returns. These include Tinic (1988), Muscarella and Vetsuypens (1989), Megginson and Weiss (1991), and Dewenter and Malatesta (1997).…”

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confidence: 99%

From State to Market: A Survey of Empirical Studies on Privatization

2001

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper was developed with financial support from the SBF Bourse de Paris and the New York Stock Exchange, and the assistance and comments of George Sofianos, Bill Tschirhart, Jean-Claude Cosset, Kathy Dewenter, Ranko Jelic, John Nellis, Rob Nash, Marc Lipson, Harold Mulherin, and Annette Poulsen is gratefully acknowledged. Earlier drafts of the authors' privatization works cited herein have benefited from comments received from participants at the 1993 National Bureau of Economic Research corporate finance conference, the 1994-1998 American Finance Association annual meetings, the 1994 American Economic Association meeting, the 1994 Political Economy Research Center Privatization Forum, the 1995-1998 Financial Management Association annual meetings, the 1995 European Finance Association meeting, the 1997 NYSE Cancun Conference on Global Equity Issuance, and seminars at the Copenhagen Business School, the Norwegian School of Management, the University of Chile, the Federal Reserve Bank of New York, Emory University, the University of Georgia, Florida State University, Virginia Tech, Indiana University, The University of Houston, and Tulane University. All remaining errors are the authors' alone. This study surveys the academic and professional literature examining the privatization of stateowned enterprises (SOEs), with a focus on empirical studies. The paper is written from the perspective of a policy-maker weighing the adoption of a national privatization program, who seeks answers to the following questions: (1) How large an impact have privatization programs actually had thus far on state involvement in different national economies?; (2) Has the decision to privatize been based on dissatisfaction with the economic performance of SOEs, and is there a viable policy alternative to divestment?; (3) Have privatization programs significantly improved the operating and financial performance of the companies divested?; (4) Terms of use: Documents in EconStor mayOnce the decision to privatize is made, how do governments select the appropriate method and sequencing of selling state-owned assets?; (5) How do governments price the SOEs they wish to sell and how do they decide which potential buyers to favor?; and (6) Have investors who purchase the shares of privatized firms experienced positive short and long-term returns?Privatization has been instrumental in reducing state ownership in many countries and had a transforming effect on global stock markets, al...

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“…The price discount, therefore, serves to induce the investment banker to put enough effort in advising and selling the firm's shares. Evidence found by Muscarella and Vetsuypens (1989) on investment banks going public, however, refuted this model. Underpricing proved to be significant at IPOs by investment banks as well, even though no asymmetric information existed since issuers acted as their own agents in the going public process.…”

Section: Theories Based On Asymmetric Informationmentioning

confidence: 99%