Reforming the US IPO market: lessons from history and theory

Robert Wright

Accounting History Review, 2002, vol. 12, issue 3, 419-437

Abstract: The current US IPO market is inefficient and unfair. To protect their own balance sheets, US investment banks systematically underprice offerings. To ration the cheap securities, the investment banks utilize various nefarious nonprice rationing techniques, including kickbacks. Regulators should reform the market by loosening restrictions against issuers. The early history of the market (1781-1861) shows that unregulated IPO markets can function efficiently. Early US corporations successfully sold equities directly to investors without the aid of intermediaries because they could overcome information asymmetry cheaply. Today, the Information Revolution is again decreasing the cost of reducing information asymmetry between investors and issuers. Regulators could improve upon the past, however, by allowing the market to price ration new shares via an auction method.

Keywords: Investment Banking; Initial Public Offerings; Direct Public Offerings; Theory; Of; Asymmetric Information; History Of Securities Markets (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1080/09585200210164584

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