Journal of Banking & Finance Vol. 110 2020
How a pre-IPO audit committee improves IPO pricing efficiency in an economy with little value uncertainty and information asymmetry
Abstract
We examine the effect of a pre-IPO audit committee on IPO pricing from the perspectives of information asymmetry and agency problems. We propose a bargaining power hypothesis to disentangle the information asymmetry explanation (financial reporting quality) from the agency problems explanation (underwriter bargaining power) on IPO pricing. IPO underpricing can be reduced by increasing the financial reporting quality under information asymmetry and/or by decreasing the underwriter bargaining power under agency problems. An audit committee can raise the quality of financial reporting and reduce the bargaining power of underwriters. With a pre-IPO market, the IPO markets in Taiwan have little information asymmetry, thus leading to the weak importance of reducing information asymmetry. We show that the establishment of a pre-IPO audit committee improves IPO pricing efficiency by reducing underwriter bargaining power rather than by raising the quality of financial reporting in Taiwan.
- DOI
- 10.1016/j.jbankfin.2019.105688
- Volume
- 110
- Pages
- 105688
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib