Does Prospect Theory Explain IPO Market Behavior?
We derive a behavioral measure of the IPO decision-maker's satisfaction with the underwriter's performance based on <link rid="b23">Loughran and Ritter (2002)</link> and assess its ability to explain the decision-maker's choice among underwriters in "subsequent" securities offerings. Controlling for other known factors, IPO firms are less likely to switch underwriters when our behavioral measure indicates they were satisfied with the IPO underwriter's performance. Underwriters also extract higher fees for subsequent transactions involving satisfied decision-makers. Although our tests suggest that the behavioral model has explanatory power, they do not speak directly to whether deviations from expected utility maximization determine patterns in IPO initial returns. Copyright 2005 by The American Finance Association.
Year of publication: |
2005
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Authors: | LJUNGQVIST, ALEXANDER ; WILHELM, WILLIAM J. |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 60.2005, 4, p. 1759-1790
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Publisher: |
American Finance Association - AFA |
Saved in:
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