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Home»Articles»Accounting Communication in Reducing Information Asymmetry in Primary Market: A Conceptual Modeling

Accounting Communication in Reducing Information Asymmetry in Primary Market: A Conceptual Modeling

Author : Avik Sinha and Atul Mehta
Volume 1 No.2 July-December 2012 pp 33-43

Abstract

Information asymmetry has been a critical issue in IPO market. Non-co-linearity of interests among market participants brings forth this problem. As a decision making tool, firms should leverage out the benefits of management information to encounter this problem, as it has a direct impact on the financial performance of IPOs. Since reduction of information asymmetry comes with a cost, firms should make an optimized way to balance the costs and benefits. Contracting parties consider this cost and enter into a game, driven by information asymmetry. Equilibrium outcomes of these games can be achieved in non-cooperative and cooperative ways. This paper is a literature review on role of information in IPO Pricing, information asymmetry challenges in IPO Pricing, and game theoretic solution to those problems. Main body of the paper has been divided into two sections accordingly, followed by concluding remarks. In every section, several aspects of the aforementioned respective sections have been discussed, solely on the basis of existing literature.

Keywords

Primary Market, IPO, Information asymmetry, Uncertainty, Game theory, Principal, Agent, Negotiation

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