In any event, the method used to quantify and analyze the value of a share must focus on the efficiency of price to see whether all the available information were actually incorporated (Benveniste and Spindt, 1989).
The information asymmetry that exists between investors and the company being listed and the financial intermediary is the most relevant variable in setting a price. In fact, one of the characteristic features of venture-backed IPOs is a certain degree of underpricing.
In particular, firms whose value is highly unsure are likely to have higher initial returns. In other words, underwriters tend to compensate investors for the higher costs of learning about such firms, which are more difficult to analyze (Ljungqvist and Wilhelm, 2001).
In recent years, running alongside the study of the causes of underpricing, a new research stream has surfaced with the aim of revealing whether public information is incorporated into the pricing of an IPO (Lowry and Schwert, 2003). The ultimate goal is to determine whether the existing price can be deemed economically efficient, notwithstanding later movements.
In other words, can the price take into account all knowable market data, a priori? If so, differences that may emerge between the IPO price and the stock market price can be explained by means of a “manipulated” use of information.
Though findings indicate that public information is somewhat incorporated into the offer price, the effect of this information on initial returns is rather small in economic terms. The reason for this, in part, is that any of the parties involved in the deal can easily acquire the data, and cannot significantly impact the share price.
Consequently, one can affirm that beyond the underlying characteristics of the company, the IPO price also depends on the ability of the intermediary to slot all the information into the assessment process that investors expect to be actually considered. This serves to diminish the information asymmetry that exists between the parties involved in the listing.