The market for firms: market signaling and overpricing
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The market for firms : market signaling and overpricing. / Davis, Jerome Dean; Keiding, Hans.
In: Technology and Investment, Vol. 1, No. 3, 2010, p. 205-210.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - The market for firms
T2 - market signaling and overpricing
AU - Davis, Jerome Dean
AU - Keiding, Hans
PY - 2010
Y1 - 2010
N2 - In this paper, the pricing and sale of firms is approached from the owners' point of view. It is shown that there are very strong ex ante owner incentives to set prices of firm products or services below their short- term profit maximizing levels, since low prices signal low costs and as a consequence a higher sales value of the firm. Buyers take this signaling into consideration, but irrespective of their countermoves, the equilib- rium result may be a lowering of ex ante product prices, and an ex post market overvaluation of the firm. This model is utilized to suggest possible explanations to one of the more puzzling initial public offer (IPO) phenomena: the long run underperformance of IPO equities.
AB - In this paper, the pricing and sale of firms is approached from the owners' point of view. It is shown that there are very strong ex ante owner incentives to set prices of firm products or services below their short- term profit maximizing levels, since low prices signal low costs and as a consequence a higher sales value of the firm. Buyers take this signaling into consideration, but irrespective of their countermoves, the equilib- rium result may be a lowering of ex ante product prices, and an ex post market overvaluation of the firm. This model is utilized to suggest possible explanations to one of the more puzzling initial public offer (IPO) phenomena: the long run underperformance of IPO equities.
KW - Faculty of Social Sciences
KW - signaling
KW - IPO overpricing
U2 - 10.4236/ti.2010.13024
DO - 10.4236/ti.2010.13024
M3 - Journal article
VL - 1
SP - 205
EP - 210
JO - Technology and Investment
JF - Technology and Investment
SN - 2150-4059
IS - 3
ER -
ID: 21909396