To mitigate the effect of underwriter bargaining power on IPO pricing through audit committee under an economy of little information asymmetry

Lanfeng Kao, Min Hsien Chiang, Anlin Chen

Research output: Contribution to journalArticlepeer-review

Abstract

Chang et al. (Rev Financ Stud 30:835–865, 2017) attribute the underpricing of IPOs with little information asymmetry to agency costs resulting from the bargaining power of underwriters. In this study, we determine that a pre-IPO audit committee and auction method can reduce underwriter bargaining power, thereby improving IPO pricing efficiency. Auction method refrains underwriter discretion on IPO allocation. A pre-IPO audit committee or auction method does not raise IPO prices directly because there is little information asymmetry in Taiwan but does so indirectly by mitigating underwriter bargaining power. We determine that underwriters can save distribution efforts by lowering IPO offer price with their bargaining power before issuance to reduce costs. However, an effective audit committee can attenuate the negative effect of underwriter bargaining power on IPO prices.

Original languageEnglish
Pages (from-to)147-167
Number of pages21
JournalReview of Quantitative Finance and Accounting
Volume63
Issue number1
DOIs
Publication statusPublished - 2024 Jul

All Science Journal Classification (ASJC) codes

  • Accounting
  • General Business,Management and Accounting
  • Finance

Fingerprint

Dive into the research topics of 'To mitigate the effect of underwriter bargaining power on IPO pricing through audit committee under an economy of little information asymmetry'. Together they form a unique fingerprint.

Cite this