Information Asymmetry Premium
The discount investors demand on new equity issuances to compensate for the adverse-selection risk that managers know more about the firm's true value than the market does. Typically 10-25% for a public seasoned equity offering and 30-50% for an IPO; under pecking-order theory, this premium is exactly why managers treat equity as a last resort. The premium can be reduced (but not eliminated) by signaling devices like rights issues, PIPE deals with diligent strategic investors, and pre-issuance disclosure.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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