This paper tests Baron's (1982) model of initial public offering (IPO) underpricing. That model relies on information asymmetries between issuers and underwriters and predicts that offer prices will be lower than would prevail in the absence of asymmetric information. We examine the initial public offerings of 38 investment banks that went public in the period 1970-1987 and participated in the distribution of their own securities. We find that contrary to the implication of Baron's model such self-marketed offerings are characterized by statistically significant underpricing comparable to that of other IPOs.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Strategy and Management