Empirical evidence suggests that new equity issues are generally:

Question

Quizplus · Accepted Answer

Empirical evidence suggests that new equity issues are often underpriced, at least in part, to counteract the winner's curse. This is because there is typically asymmetric information between the issuer and potential buyers of the new shares. The issuer has better information about the true value of the company and its prospects, and may try to set a high offering price to maximize the proceeds. However, potential buyers may be hesitant to pay that price because they fear that they may be overpaying and end up with a bad investment. As a result, underpricing the issue can help to attract buyers and ensure a successful offering.

Empirical Evidence Suggests That New Equity Issues Are Generally