The Information Content of IPO Prospectuses
Year: 2010
Type: article
Abstract: Using word content analysis, we decompose information in the initial public offering prospectus into its standard and informative components. Greater informative content, as a proxy for premarket due diligence, results in more accurate offer prices and less underpric-ing, because it decreases the issuing firm’s reliance on bookbuilding to price the issue. The opposite is true for standard content. Greater content from high reputation underwriters and issuing firm managers, through Management’s Discussion and Analysis, contribute to the informativeness of the prospectus. Our results suggest that premarket due diligence and disclosure by underwriters and issuers can serve as a substitute for costly bookbuilding. (JEL G14, G24, G30, G32) Althoughthere exists a substantial body of literature on the initial public offer-ing (IPO) process and the determinants of IPO pricing, unresolved questions remain on how IPOs are priced. Traditional views of IPO pricing have focused primarily on the role of bookbuilding in providing valuable information for IPO pricing (Benveniste and Spindt 1989; Spatt and Srivastava 1991; Cornelli and Goldreich 2003). In this article, we examine whether there exists a trade-
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhq024
Authors: Kathleen Weiss Hanley, Gerard Hoberg
Institutions: Lehigh University, University of Southern California
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2165055178