The effects of RandD, venture capital, and technology on the underpricing of IPOs in Taiwan

Information asymmetry and value uncertainty causes high -research and development (RandD) or high-tech Initial Public Offerings (IPOs) to become underpriced. Venture capital can serve as a moderator to mitigate the information asymmetry and value uncertainty to reduce IPO underpricing. High-tech ind...

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Bibliographic Details
Published in:Review of quantitative finance and accounting 2012-11, Vol.39 (4), p.423-445
Main Authors: Lu, Cheng Shou, Kao, Lanfeng, Chen, Anlin
Format: Article
Language:English
Subjects:
Asymmetric information
High technology
Initial public offering
Option pricing
Research and development
Taiwan
Technology
Uncertainty
Venture capital
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Summary:Information asymmetry and value uncertainty causes high -research and development (RandD) or high-tech Initial Public Offerings (IPOs) to become underpriced. Venture capital can serve as a moderator to mitigate the information asymmetry and value uncertainty to reduce IPO underpricing. High-tech industries significantly contribute to Taiwan's economic growth. With the unique Taiwan data, we find that venture-backed IPOs are less underpriced. More importantly, IPO underpricing due to technology decreases with the use of venture capital and decreases with the interaction between RandD expenditure and technology. Technology requirement reduces the underpricing of high-RandD IPOs. Accordingly, RandD spending reduces the underpricing of high-tech IPOs. Reprinted by permission of Springer
ISSN:0924-865X
DOI:10.1007/s11156-011-0259-7