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    POWER AND THE ALLOCATION OF EQUITY AND CONTROL IN INITIAL PUBLIC OFFERINGS: A RESOURCE-DEPENDENCY APPROACH TO SIGNALING AND UNDERPRICING

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    Genre
    Thesis/Dissertation
    Date
    2008
    Author
    Pearlstein, John Samuel
    Advisor
    Hamilton, Robert D. (Robert Devitt)
    Committee member
    Mudambi, Keith D.
    Mudambi, Ram, 1954-
    Zeitz, Gerald Joseph, 1942-
    Department
    Business Administration
    Subject
    Business Administration, Management
    Initial Public Offerings
    Signaling Theory
    Resource Dependency
    Underpricing
    Organizational Change
    Power
    Permanent link to this record
    http://hdl.handle.net/20.500.12613/3723
    
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    DOI
    http://dx.doi.org/10.34944/dspace/3705
    Abstract
    The implication that first day returns of initial public offerings are a consequence of the imbalance of power between issuer and underwriter has been suggested more than it has been tested. An important tool in such an analysis has been missing. Using a resource contribution approach to bargaining power, measures of underwriter and issuer power are created. Significant results with both measures show that consistent with theory, underwriter power is positively associated with underpricing, while issuer power's association is negative. The underwriter power measure compares favorably in this study to Carter-Manaster's prestige measure. The theory presented also suggests that issuers and underwriters engage in a short-term cooperative agreement to bring critical resources to issuers to enhance their initial public offering. Contributed resources form the basis for each firms bargaining power which is strongest when setting the initial file price. Results show the importance of resource power on the distribution of proceeds and how power changes during the registration process. Finally this theory expands signaling theory and suggests that issuers under the influence and direction of their underwriter make pre-IPO organizational changes to send signals of quality to preemptively address investor's concerns. These pre-IPO gambits are intended to increase IPO proceeds, but come at a price. Theories of power are used to create a measure of the relative strength of these actors and find that making TMT changes significantly decreases underpricing. Although underwriter power is significantly associated with change, relative power does not reduce the amount of change signaled.
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