The Informational Content of Initial Public Offerings

The ability of capital markets to distinguish firms of

different value by the size of their initial equity offerings is

attenuated when insiders can sell equity more than once. A model

is developed in which there is price risk from holding equity

between periods. When the uncertainty is small. there must be

pooling in the first period. When uncertainty is large. the

pooling equilibria dominate the separating equilibrium.

^*Published: Published as "The Information Content of Initial Public Offerings", JF, Vol. 44, no. 2 (1989): 469-478.

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