Keywords

signaling, signal-jamming, IPOs, secondary shares, offer-term adjustments

Abstract

We study a known negative signal, the sale of insider shares in an IPO and find that insiders adopt two concealment strategies consistent with wealth-maximizing behavior. First, insiders underreport the number of personally owned shares in the prominent original prospectus and use an obscure amendment to communicate the true higher level of shares to be offered. Second, when insiders increase shares in a later amendment, they tend to either increase secondary shares disproportional to primary share increases, or to reduce primary shares to wholly or partly conceal the increase in secondary shares offered. Insiders confound the negative secondary share signal by simultaneously sending a positive lockup signal.

Original Publication Citation

Concealing and Confounding Adverse Signals: Insider Wealth-Maximizing Behavior in the IPO Process, with James Ang, Journal of Financial Economics, Vol. 67, Issue 1, 2003, 149-172.

Document Type

Peer-Reviewed Article

Publication Date

2003

Publisher

Journal of Financial Economics

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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