Public ownership provides liquidity, lowers future capital costs, enhances strategic flexibility, and sets into motion a complicated process of financial intermediation, regulation, and market activity. Informational limitations faced by buyer and seller that turn a simple market mechanism into a panoply of economic adjustments and solutions. The basic exchange of investor capital for issuer equity gives rise to a network of bilateral exchanges, each with its own transaction function Signals, certification, agents, contracts, as well as adverse selection, opportunism, and moral hazard all play a role in establishing an equilibrium price. Despite this, Franklin Allen (1993) and Oliver Williamson (1988) find equity markets have informational and governance advantages in asymmetric estimates of firm value.; This dissertation on IPOs is composed of three parts--a presentation of the whole IPO process, and then the two key transactions are examined separately. Part 1 establishes the information characteristics of IPOs and sets forward the TCE principles. The IPO process is defined in terms of transacting dimensions, information requirements, and governance structures. The governance structures highlight the narrowing need for regulatory intervention. Part 2 focuses on the issuer-investment banker bilateral exchange. The intermediation process begins with a commitment to a contractual form. The role of uncertainty on the choice of contract is tested with a logit model. A nested model, restricting size-of-offering is also tested. The overriding concern for the investment banker is the use of the funds raised. An update examines the evolving nature of the intermediation contract, as the differences between the contacts blur, with each taking on desirable characteristics of the other. Part 3 focuses on the market exchange. Underpricing is a reaction of the market to the fixed price offering. I measure the risk and return in IPOs, using a structure equation model with latent variables (LISREL). The level of uncertainty is found to have a positive relationship with underpricing.
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