Scholarly record
AGENCY THEORY RELATED EXPLANATIONS FOR INITIAL PUBLIC OFFERING ANOMALIES
Abstract
There are two well-known anomalies about initial public offering companies; abnormal initial returns to outside investors and long-term underperformance. These two well-documented anomalies are still unsolved puzzles which attract great attention in corporate finance research. This leads to generation of many possible explanations with different hypotheses. Beside many other theories and perspectives, agency theory related explanations for these anomalies is a flourishing and fruitful area for further research. In this paper, it is aimed to construct the links between agency theory and initial public offering anomalies by analyzing the related empirical and theoretical studies. The agency theory perspective often explains the anomaly about abnormal initial returns to outside investors with asymmetric information with the major assumption that information asymmetry exists between the initial public offerings team, underwriters, and external investors that may create agency costs and lead to underpricing when the initial offer price is less than the first-day closing price of the initial public offerings shares. From the agency theory perspective, the long-term underperformance anomaly is explained by agency problems created after the change of ownership mode.
Publication Impact Profile
Publication details
References15
Filatotchev I. & Bishop F. Board composition, share ownership and underpricing of UK IPO Firms”, Strategic Management Journal, 23, pp:941-955, 2002.
Gregoriou G.N. Initial public offerings: an international perspective, Butterworth-Heinemann, UK, 2006.
Higgins M.C. & Gulati R. Getting off to a start: the effects of upper echelon affiliations on prestige of investment bank and IPO success”, Harvard Business School, Working Paper, 1999
Jensen M. & Meckling W. Theory of firm: managerial behaviour, agency costs and capital structure”, Journal of Financial Economics, vol.3, pp:305-360,1976
Ljungqvist A. IPO underpricing, In Eckbo B.E (ed.), Handbook of Corporate Finance, North-Holland, Netherlands, 2007
Loughran T. & Ritter J. The new issues puzzle, Journal of Finance, vol.50/ issue 1, pp:23-51,1995
Loughran T. Ritter J. & Rydqvist K. Initial public offerings: international insights, Pacific-Basin Finance Journal, vol. 2/issue 3, pp. 165-199, 1994
McBain M.L. & Krause D.S. Going public: the impact of insider’s holdings on the price of initial public offering”, Journal of Business Venturing, vol.4, pp:419-428, 1989
Mikkelson W., Partch M. & Shah K. Ownership and operating performance of companies that go public, Journal of Financial Economics, vol.44, pp:281-307,1997
Pagano M., Panetta F. & Zingales L. Why do companies go public? The Journal of Finance, vol.53, pp:27-63, 1998
Ritter J. The costs of going public, Journal of Financial Economics, vol.19/issue 2, pp: 269-81, 1987
Ritter J. Initial public offerings, Contemporary Finance Digest, vol.2/issue 1, pp:5-30, 1998
Ritter J. & Welch I. A review of IPO activity, pricing and allocations, Journal of Finance, vol.57/ issue 4, pp:1795-1828, 2002
Ritter J. The long-run performance of initial public offerings, Journal of Finance, vol.46/issue 1, pp:3-28, 1991
Zattoni A. & Judge W. Corporate governance and initial public offerings: an international perspective, Cambridge University Press, UK, 2012
View or Download full articleAccess options
SWS access login
Login as SWS Scientific CommitteeLogin as SWS Scientific PartnerLogin as SWS AuthorAuthors and approved SWS contributors will read and export their own linked papers after identity matching by SWS profile, email and SGEM GlobalID.
For librarian assistance: [email protected]
Purchase Instant Access
- Article can be downloaded after successful payment.
- Article may be used according to SWS library access terms.
- Article cannot be redistributed.
