Signaling by Underpricing the Initial Public Offerings of Primary Listings in an Emerging Market

Ales Cornanic and Jiri Novak
Additional contact information
Ales Cornanic: Institute of Economic Studies at the Faculty of Social Sciences, Charles University in Prague

Czech Journal of Economics and Finance (Finance a uver), 2015, vol. 65, issue 4, 307-335

Abstract: We show that issuers use initial public offering (IPO) underpricing to signal their quality when the a priori information asymmetry is significant. Contrary to weak evidence in the signaling hypothesis from established markets, we find that in a less transparent emerging market firms strategically underprice their IPOs to issue seasoned equity at better terms. Private firms that underpriced their primary listing in Poland between 2005 and 2009 were more likely to make follow-up seasoned equity offerings (SEOs) and their SEOs were larger and occurred sooner after the IPOs. This suggests that the economic incentives to follow the signaling strategy are stronger in opaque environments where high-quality issuers may underprice IPOs to overcome information asymmetry.

Keywords: initial public offering; seasoned equity offering; underpricing; signaling; information asymmetry; emerging market (search for similar items in EconPapers)
JEL-codes: G14 G15 G30 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://journal.fsv.cuni.cz/storage/1336_novak.pdf (application/pdf)

Related works:
Working Paper: Signaling by Underpricing the Initial Public Offerings of Primary Listings in an Emerging Market (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:65:y:2015:i:4:p:307-335

Access Statistics for this article

More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().