Good IPOs draw in bad: Inelastic banking capacity and hot markets.
We posit that screening IPOs requires specialized labor which, in the short run, is in xed supply. Hence, a sudden increase in demand for IPO nancing increases the compensation of IPO screening labor. Increased compensation results in reduced screening which encourages sub-marginal rms to enter the IPO market, further increasing the demand for screening labor and thus its compensation. The model's conclusions are consistent with empirical ndings of increased underpricing during hot markets, p...Expand abstract
- Financial Economics Working Papers
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