An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Anne Wyatt
University of Adelaide and University of Melbourne

Abstract: This paper examines the extent that three pieces of information explain variation in underpricing and long run performance: (1) the listing purpose and use of funds information required in the IPO prospectus; (2) intangible assets voluntarily reported on the pro forma balance sheet in the prospectus; and (3) intellectual property (IP) comprising patents, trademarks and designs. The paper exploits a unique setting where issuers have discretion to record intangible assets and “fixed price offers” potentially escalate information asymmetry relative to other settings. The results are consistent with the proposition that information asymmetry is relatively lower for issuers that disclose a firm commitment in the prospectus to invest in productive assets to grow sales. “Good” news (intangible assets and IP) further reinforces this signal. Hence, these firms have less need to underprice the offer to motivate participation and are also the IPOs expecting to perform well in the future.

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