The underpricing of ‘second’ initial public offerings

The underpricing of initial public offerings (IPOs) of equity represents a well‐documented empirical phenomenon. One prominent explanation for this underpricing relies on the uncertainty investors feel about the value of the issuer. In this paper, this asymmetric information hypothesis is tested by examining the underpricing of IPOs of seventy‐four firms for which the uncertainty about the value of the firm is likely to be substantially reduced. These firms were once publicly owned, then taken private, and subsequently returned to public ownership. Findings show that the IPOs of these ‘reverse leveraged buyouts’ are significantly less underpriced than typical IPOs. These results support the asymmetric information hypothesis.