Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings

43 Pages Posted: 11 Dec 2007

See all articles by Andrew J. Leone

Andrew J. Leone

University of Miami

Steve Rock

affiliation not provided to SSRN

Michael Willenborg

University of Connecticut - Department of Accounting

Multiple version iconThere are 3 versions of this paper

Abstract

We use the context of a company's initial public offering (IPO) of equity securities as a capital-markets setting to empirically study the economic consequences of endogenous disclosure. In particular, we examine the relation between the extent of dollar detail an IPO issuer provides regarding their intended use of proceeds and first-day underpricing. We document substantial variation in the specificity of this disclosure and find that an increase in such specificity is associated with lower IPO underpricing. Overall, our results suggest that IPOs that provide specific use-of-proceeds disclosures have less ex ante uncertainty, in the sense that these disclosures help investors estimate the dispersion of secondary market values. Our paper contributes to the empirical accounting literature by documenting an association between voluntary disclosure and what is arguably the foremost cost of raising initial equity capital (i.e., IPO underpricing).

Suggested Citation

Leone, Andrew J. and Rock, Steve and Willenborg, Michael, Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings. Journal of Accounting Research, Vol. 45, Issue 1, pp. 111-153, March 2007. Available at SSRN: https://ssrn.com/abstract=1065862 or http://dx.doi.org/10.1111/j.1475-679X.2007.00229.x

Andrew J. Leone

University of Miami ( email )

School of Business
Coral Gables, FL 33146
United States
305-284-3101 (Phone)

HOME PAGE: http://sbaleone.bus.miami.edu

Steve Rock (Contact Author)

affiliation not provided to SSRN

Michael Willenborg

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269
United States
860-486-3020 (Phone)
860-486-4838 (Fax)

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