Information Asymmetry in IPOs

An article in today's BS evoked the following thoughts.

The majority of individuals involved in portfolio management services acknowledge a significant Information Asymmetry in the IPO market. In an IPO, the seller determines the pricing, and the information provided through the RHP (Red Herring Prospectus) often falls short in addressing critical aspects such as Governance, Business Model, Strategy, Management perspective, and ESG considerations. Notably, a substantial number of modern IPOs involve Offer for Sale (OFS), which serves as a prominent exit strategy for private equity rather than a genuine value-driven exit

Contrary to the Efficient Market Hypothesis (EMH), which posits that asset prices incorporate all available information, the IPO market operates differently than the secondary market. While secondary markets predominantly adhere to EMH principles, primary markets seem susceptible to the opposing theory of Irrational Exuberance. Personally, I've observed a persistent inclination to maintain information asymmetry among companies preparing for an IPO.

One potential solution to mitigate Information Asymmetry (IA) is preparing a comprehensive pre-IPO annual report. However, some Chief Financial Officers (CFOs) and Merchant Bankers resist this idea, possibly with the intention of preserving Information Asymmetry. This preservation may be geared towards safeguarding the unfairly priced IPO, even if it means maintaining a level of opacity in some crucial areas. This strategy is seemingly employed to secure the success of the IPO, especially in instances where there might be concerns about the valuation being perceived as inflated.