Abstract
In this article, Loughran and Ritter (2001; hereafter LR) provide an interesting new theory and empirical analysis. In this discussion I would like to elaborate on their analysis in several ways. First, in Section 1 1 review Microsoft's IPO process, as documented in a 1986 Fortune article, and related this to the LR model and evidence. In Section 2 I briefly discuss the LR model and its implications, and the empirical findings presented in LR that support the model. In Section 3 I present some additional empirical evidence suggesting that the LR prospect-theory model can't fully explain the IPO puzzles. Section 4 proposes an alternative explanation for these data: namely that the data are consistent with a bargaining game in which the issuers', underwriters', and investors' bargaining power changes with business and industry cycles. Section 5 concludes.
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