infrastructure required to secure a position of market leadership and to acquire a customer base However, this perspective was largely reversed in late 2000 as investors realised that ongoing infusions of cash could not underpin the development of a company that lacked a sustainable business model. To the extent that our sample includes post-April 2000 IPO's the power of our tests to find a relation between underpricing and cash burn will be reduced 3.3 Underpricing and the Information Content of Going Concern Warnings McKeown(2000)on the information content of audit qualifications issued pre-lPU lhe sand This hypothesis is motivated by recent research in the US undertaken by Willenborg Australian IPO market provides a different setting in which to examine the extent to which information asymmetries between issuer and investor are mitigated by the signalling effect of audit qualifications, and the extent to which this signalling is incorporated into the relative underpricing of a particular issue In Rock's(1986)model, underpricing is required to compensate uninformed investors for the winners curse problem. Beatty and ritter(1986) argue that the level of underpricing is related to the ex ante tainty of the aftermarket value of the IPO. IPOs with greater ex ante uncertainty are more difficult to value. To compensate investors for the greater uncertainty, higher risk IPOs have higher initial returns. Therefore, IPOs with higher ex ante uncertainty are more underpriced than those with lower ex ante uncertainty. Empirical support for this monotonic relationship can be found in Ritter(1984), Beatty and Ritter(1986), Wolfe and Cooperman (1990), How, Izan and Monroe(1995), and Lee, Taylor and Walter(1996a) Willenborg and McKeown(2000)extend the model by predicting that a going-concern opinion issued for an IPO candidate has the ability to affect the level of uninformed investors'ex ante uncertainty about the true value of an offering and hence the anticipated level of underpricing. This argument draws on the information content of the audit qualification as a proxy for the volatility or skewness of future returns in the secondary market, rather than as a predictor of investment failure. Consistent with their hypothesis, Willenborg and McKeown (2000) find that securities with going-concern opinions suffer less first-day underpricing than similar securities without going-concern Notwithstanding the robustness of Rock's(1986) model of underpricing and the significan results documented by Willenborg and McKeown(2000)in a US setting concentrating on the small deal"(IPO proceeds up to US$10 million) segment of the IPO market, the direction of our final hypothesis is not obvious. It appears equally reasonable to contend that the issuance of a qualified audit opinion for an IPO candidate is a signal of a poor quality investment opportunity In this respect, investors would demand a greater risk premium to subscribe to the issue which in10 infrastructure required to secure a position of market leadership and to acquire a customer base. However, this perspective was largely reversed in late 2000 as investors realised that ongoing infusions of cash could not underpin the development of a company that lacked a sustainable business model. To the extent that our sample includes post-April 2000 IPO’s the power of our tests to find a relation between underpricing and cash burn will be reduced. 3.3 Underpricing and the Information Content of Going Concern Warnings This hypothesis is motivated by recent research in the US undertaken by Willenborg and McKeown (2000) on the information content of audit qualifications issued pre-IPO. The Australian IPO market provides a different setting in which to examine the extent to which information asymmetries between issuer and investor are mitigated by the signalling effect of audit qualifications, and the extent to which this signalling is incorporated into the relative underpricing of a particular issue. In Rock’s (1986) model, underpricing is required to compensate uninformed investors for the winner’s curse problem. Beatty and Ritter (1986) argue that the level of underpricing is related to the ex ante uncertainty of the aftermarket value of the IPO. IPOs with greater ex ante uncertainty are more difficult to value. To compensate investors for the greater uncertainty, higher risk IPOs have higher initial returns. Therefore, IPOs with higher ex ante uncertainty are more underpriced than those with lower ex ante uncertainty. Empirical support for this monotonic relationship can be found in Ritter (1984), Beatty and Ritter (1986), Wolfe and Cooperman (1990), How, Izan and Monroe (1995), and Lee, Taylor and Walter (1996a). Willenborg and McKeown (2000) extend the model by predicting that a going-concern opinion issued for an IPO candidate has the ability to affect the level of uninformed investors’ ex ante uncertainty about the ‘true’ value of an offering and hence the anticipated level of underpricing. This argument draws on the information content of the audit qualification as a proxy for the volatility or skewness of future returns in the secondary market, rather than as a predictor of investment failure. Consistent with their hypothesis, Willenborg and McKeown (2000) find that securities with going-concern opinions suffer less first-day underpricing than similar securities without going-concern opinions. Notwithstanding the robustness of Rock’s (1986) model of underpricing and the significant results documented by Willenborg and McKeown (2000) in a US setting concentrating on the “small deal” (IPO proceeds up to US$10 million) segment of the IPO market, the direction of our final hypothesis is not obvious. It appears equally reasonable to contend that the issuance of a qualified audit opinion for an IPO candidate is a signal of a poor quality investment opportunity. In this respect, investors would demand a greater risk premium to subscribe to the issue which in