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Keywords:

  • management buyouts;
  • IPOs;
  • information asymmetry;
  • under-pricing

In this paper we examine the degree of under-pricing of two different types of unseasoned equity offerings (IPOs), namely MBO-IPOs and non-MBO-IPOs. Since, MBO-IPOs were previously subsidiaries or divisions of publicly listed companies which were taken private by a group of managers and then reverted back to public ownership; there should be a lower level of information asymmetry between the market on the one hand and the company and its underwriters on the other. Thus, if under-pricing is mainly the result of uncertainty about the market value of the issuing firm, the information asymmetry hypothesis would predict that, compared with the non-MBO-IPOs, MBO-IPOs should exhibit a significantly lower degree of under-pricing. The results show that MBO-IPOs are less under-priced than non-MBO-IPOs. However, the difference is not statistically significant.