EFFECTS OF DIFFERENTIAL INFORMATION ON THE AFTER-MARKET VALUATION OF INITIAL PUBLIC OFFERINGS

This paper examines the after-market for initial public offerings (IPO s), particularly the security valuation effects of structural differen ces in available information. There is a diversity of information amon g issuing firms at the time of their offering and particularly under c ertain market conditions. Because this diversity decreases with time a nd after-market trading, the IPO market provides an ideal setting for testing errors due to differential information levels in early after-m arket valuation of IPO firms. We find evidence that during ''hot'' mar ket conditions and for firms characterized by low levels of available information, the market values of issuing firms are more likely to be overestimated in the immediate after-market. We also find positive ove restimation of market values to be more likely for larger IPOs and for those marketed by the less prestigious underwriters.