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

Author

Listed:
  • Lanfeng Kao

    (National University of Kaohsiung)

  • Min-Hsien Chiang

    (National Cheng Kung University)

  • Anlin Chen

    (National Sun Yat-Sen University)

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.

Suggested Citation

  • Lanfeng Kao & Min-Hsien Chiang & Anlin Chen, 2024. "To mitigate the effect of underwriter bargaining power on IPO pricing through audit committee under an economy of little information asymmetry," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 147-167, July.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:1:d:10.1007_s11156-024-01271-7
    DOI: 10.1007/s11156-024-01271-7
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    More about this item

    Keywords

    Auctioned method; Audit committee; IPOs; Pre-IPO market; Underwriter bargaining power;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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