When asked why he did not invest in Uber, the ridesharing company, during Ubers IPO...
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When asked why he did not invest in Uber, the ridesharing company, during Ubers IPO in May 2019, Warren Buffet, the billionaire American investor, replied that he never bought IPOs, and we never will, Charlie Munger, his investment partner, added.
a.Explain why investors, even sophisticated investors such as Warren Buffet and Charlie Munger, would stay away from IPOs. Discuss why highquality IPO firms have incentive to differentiate themselves from lowquality IPO firms.
b. In Simultaneous Signaling in IPOs via Management Earnings Forecasts and Retained Ownership: An Analysis of the Substitution Effect (Li and McConomy, 1999), what signals did Canadian IPO firms use to signal their high quality? Discuss why it is costly for low quality IPO firms to imitate the high quality IPOs by using these signals (i.e. what are the costs associated with using these signals).
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