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| Author: | Welch, I. |
| Title: | Seasoned offerings, imitation costs, and the underpricing of initial public offerings. |
| Journal: | Journal of Finance
1989 : JUN, VOL. 44:2, p. 421-449 |
| Index terms: | SHARE PRICES FINANCIAL MODELS TENDER OFFERS |
| Language: | eng |
| Abstract: | A signalling model is presented in which high-quality firms underprice at the initial public offering (IPO) in order to obtain a higher price at a seasoned offering. The main assumptions are that low-quality firms must invest in imitation expenses to appear to be high-quality firms, and that with some probability this imitation is discovered between offerings. Underpricing by high-quality firms at the IPO can then add sufficient signalling costs to these imitation to induce low-quality firms to reveal their quality voluntarily. |
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