Redacting Proprietary Information at the Initial Public Offering

Abstract

Nearly 40% of IPO firms redact information from their SEC registration filings. These firms exhibit characteristics consistent with the need to shield proprietary information from potential rivals. They experience greater underpricing, but pre-IPO insiders reduce underpricing-related wealth transfers by selling proportionately less of the firm’s shares at the IPO, raising more equity financing in later seasoned equity offerings, and selling their own holdings at a relatively slow pace. The information environment of redacting firms reflects proportionately more private information than that of non-redacting firms post IPO, but this difference abates by the fourth year. Consistent with the view that redacted proprietary information provides competitive advantages, redacting firms exhibit superior financial performance post IPO. The results illustrate tradeoffs in balancing firms’ needs to protect proprietary information with their capital needs, investors’ needs for information to price securities, and pre-IPO owners’ liquidity needs.

Keywords: IPO, Product Markets, Underpricing, Proprietary information, Information asymmetry, Disclosure

JEL Classification: G30, G32, G14