- Finance Research Letters Journal
- July 2021
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- I examine the IPO underpricing phenomenon through the lens of incomplete contracts, where holdup is measured with the degree of IPO underpricing. Competing theories set forth a reason for why one type of IPO contracting (Firm Commitment Offering) is a more efficient contract than another (Best Efforts Offering). In particular, I highlight how i) allocation of bargaining power and ii) default option in the renegotiation process can be mapped to key features of the contracts. This paper demonstrates the general applicability of contract theories to study a well-known phenomenon of IPO underpricing.
- incomplete contracts; renegotiation design; bargaining; initial public offerings; ipo underpricing; financial intermediaries