#04-13
"Prevention is Better than Cure: Precluding Information Acquisition in IPOs"
Abstract: We treat information acquisition by potential investors in IPOs as endogenous. With endogenous information, the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer. We show that institutional arrangements such as regulars, stabilization, short-selling constraints, and investment banking syndicates avoid such a wealth transfer by precluding information acquisition and the information asymmetry that would otherwise arise. We characterize the resulting outcome as one of symmetric ignorance."
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