Underpricing of banks in intermediary-oriented marketplaces: a test of Baron’s model on the italian market

Baron’s model shows that underpricing results from asymmetrical information between the issuer and underwriters. Muscarella and Vetsuypens’ test on the validity of Baron’s theory in the US market shows no significant results. However, the model may partially explain underpricing in countries strongly oriented towards financial intermediaries, and was thus tested empirically on the Italian market. We find that the underpricing of self-underwritten offerings by banks is lower than that by other firms and that information asymmetry between issuer and intermediary may be a reason for underpricing.