Journal of Applied Business Research
Most studies attribute the underpricing of initial public offerings of equity securities to the ex ante uncertainty resulting from the information differential between the firm going public and the market. Ruud (1991, 1993), however, proposes that underpricing could result from underwriter price support in the early after-market. A paper examines firms that were once public, went private via leveraged buyout, and then went public again. It is reasonable to expect that since these reverse LBOs (RLBO) were once publicly traded, they should have less of an information differential with the market than firms going public for the 1st time. Tests indicate that there is little or no information asymmetry between RLBOs and the market. It is found that RLBO initial returns are more consistent with price support than with information asymmetry.
Original Publication Citation
Noronha, G., & Yung, K. (1997). Reverse LBO underpricing: Information asymmetry or price support? Journal of Applied Business Research, 13(3), 67-77. doi:10.19030/jabr.v13i3.5753
Noronha, Gregory and Yung, Kenneth, "Reverse LBO Underpricing: Information Asymmetry or Price Support" (1997). Finance Faculty Publications. 11.