Redacting Proprietary Information at the Initial Public Offering

57 Pages Posted: 4 Nov 2013 Last revised: 19 May 2015

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Shane A. Johnson

Texas A&M University - Department of Finance

Date Written: May 15, 2015

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

Suggested Citation

Boone, Audra and Floros, Ioannis V. and Johnson, Shane A., Redacting Proprietary Information at the Initial Public Offering (May 15, 2015). Finance Down Under 2014 Building on the Best from the Cellars of Finance, Available at SSRN: https://ssrn.com/abstract=2348184 or http://dx.doi.org/10.2139/ssrn.2348184

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Shane A. Johnson (Contact Author)

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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