Security design in initial public offerings

Published

Journal Article

We investigate an IPO security design problem when information asymmetries across investors lead to a winner's curse. Firms that are riskier in down markets can lower the cost of going public by using unit IPOs, in which equity and warrants are combined into a non-divisible package. Furthermore, firms that have a sizeable growth potential even in bad states of the world can fully eliminate the winner's curse problem by making the warrants callable. Our theory is consistent with the prominent use of unit IPOs and produces empirical implications that differentiate it from existing theories. © The Authors 2010. Published by Oxford University Press.

Full Text

Duke Authors

Cited Authors

  • Chakraborty, A; Gervais, S; Yilmaz, B

Published Date

  • April 1, 2011

Published In

Volume / Issue

  • 15 / 2

Start / End Page

  • 327 - 357

Electronic International Standard Serial Number (EISSN)

  • 1573-692X

International Standard Serial Number (ISSN)

  • 1572-3097

Digital Object Identifier (DOI)

  • 10.1093/rof/rfp029

Citation Source

  • Scopus