Asymmetric information theories argue that underwriters utilize underpricing as a means to incentivize investors to be more forthcoming about their investment preferences and to cover any trading losses stemming from firm valuation errors (Derrien, 2005). Although information asymmetries undoubtedly lead to some underpricing, a growing volume of research contends that these perspectives are limited at best in explaining why underpricing is so pervasive (Ljungqvist, 2007; Ritter & Welch, 2002). In this study, we extend recent work in Resource Dependence Theory (Hillman, Withers, & Collins, 2009; Casciaro & Piskorski, 2005) and research on entrepreneurial power (Santos & Eisenhardt, 2009) to explore how the use of power by issuers and underwriters impacts the amount of IPO proceeds appropriated by issuers.
Townsend, David; Kim, Nari; Lee, Gilsoo; Cho, Sam; and Arthurs, Jonathan
"EARNING WHAT YOU KEEP? RESOURCE DEPENDENCIES AND POWER ASYMMETRIES BETWEEN ISSUERS AND UNDERWRITERS IN IPO MARKETS (INTERACTIVE PAPER),"
Frontiers of Entrepreneurship Research: Vol. 34
, Article 10.
Available at: http://digitalknowledge.babson.edu/fer/vol34/iss3/10