Events

Authors:

• Wei WANG
  University of Colorado

• Chris YUNG
  University of Colorado

A key distinction between some models of IPO pricing (e.g., auctions and bookbuilding) and others (e.g., fixed-priced models) is whether price discovery occurs in the primary market or the secondary market. We show that higher investment bank reputation is associated with 1) more active filing price revisions and 2) reduced secondary market return variability, both of which are consistent with primary market price discovery. Reputable underwriters exhibit partial adjustment to private information but virtually complete adjustment to information implicit in the returns of public comparables. Non-reputable underwriters partially adjust to all types of information. Taken together, this evidence suggests that theoretical models of primary market information aggregation are better suited for reputable underwriters.