The Pricing of Equity IPOs that Follow Public Debt Offerings

Nianyun Cai, Latha Ramchand and Arthur Warga

Financial Management, 2004, vol. 33, issue 4

Abstract: We examine the underpricing of initial public offerings (IPOs) of equity by firms that make prior public debt offerings. We find that subsequent IPOs are associated with significantly lower underpricing. Further, the price dispersion of the preliminary filing price range is smaller, as is the price revision subsequent to information gathering during the road show. The lower underpricing is confined to subsequent IPOs that are rated. Since rated IPOs tend to be financially stronger than non-rated IPOs, our results suggest that a longer history of information helps reduce the indirect cost of issue for good quality firms.

Date: 2004
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