Prevention Is Better than Cure: The Role of IPO Syndicates in Precluding Information Acquisition

Yoram Barzel

The Journal of Business, 2006, vol. 79, issue 6, 2911-2924

Abstract: We treat information acquisition by potential investors in initial public offerings as endogenous. With endogenous information, the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer. We show that an investment banking syndicate is an institutional arrangement designed to avoid such a transfer. By inviting rival banks to share in the offering, a managing underwriter ensures they have a strong incentive to remain ignorant. We characterize the resulting outcome as one of symmetric ignorance. The desire to maintain symmetric ignorance is consistent with the observed passivity of nonmanaging syndicate participants.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://dx.doi.org/10.1086/508003 main text (application/pdf)
Access to the online full text or PDF requires a subscription.

Related works:
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:ucp:jnlbus:v:79:y:2006:i:6:p:2911-2924

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().