UNSEASONED EQUITY OFFERINGS MBO‐IPOs vs NON‐MBO‐IPOs

In this paper we examine the degree of under‐pricing of two different types of unseasoned equity offerings (IPOs), namely MBO‐IPOs and non‐MBO‐IPOs. Since, MBO‐IPOs were previously subsidiaries or divisions of publicly listed companies which were taken private by a group of managers and then reverted back to public ownership; there should be a lower level of information asymmetry between the market on the one hand and the company and its underwriters on the other. Thus, if under‐pricing is mainly the result of uncertainty about the market value of the issuing firm, the information asymmetry hypothesis would predict that, compared with the non‐MBO‐IPOs, MBO‐IPOs should exhibit a significantly lower degree of under‐pricing. The results show that MBO‐IPOs are less under‐priced than non‐MBO‐IPOs. However, the difference is not statistically significant.