IPO Information Aggregation and Underwriter Quality

Wei Wang and Chris Yung

Review of Finance, 2009, vol. 15, issue 2, 301-325

Abstract: A key distinction between some models of IPO pricing (e.g., auctions and bookbuilding) and others (e.g., fixed-priced models) is whether price discovery occurs in the primary or secondary market. Higher investment bank reputation is associated with 1) more active filing price revisions and 2) reduced secondary market volatility, indicating greater resolution of uncertainty before trading begins. Revisions of nonreputable banks cluster on exactly zero dollars. Finally, the "partial adjustment" phenomenon -- often attributed to information aggregation -- is primarily due to the behavior of reputable underwriters. We conclude that theoretical models of primary market information aggregation are better suited for reputable underwriters. Copyright 2009, Oxford University Press.

Date: 2009
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