Unit Initial Public Offerings: Staged Equity or Signaling Mechanism

32 Pages Posted: 17 Aug 2000

See all articles by Stephen L. Taylor

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN)

Martin Lee

Andersen Consulting

Philip J. Lee

University of Sydney

Date Written: August 2000


We investigate the use of unit (i.e.,package) initial public offerings by Australian industrial firms and conclude that their use at least partly reflects their role as a signaling mechanism (Chemmanur and Fulghierei, 1997). From a sample of 394 IPOs between 1976 and 1994, the 66 firms making unit offerings are typically riskier, use less prestigous underwriters and have a lower level of retained ownership than other IPO firms. While these results are also consistent with an agency cost explanation for unit offerings (Schultz, 1993), other results we report are not. We find no difference in underpricing between unit IPOs and other IPO firms, nor are there any significant differences in the planned uses of proceeds reported in the prospectus. Moreover, we report evidence consistent with a prediction unique to the signaling explanation. After controlling for the level of ownership retained by insiders, the proportion of firm value sold as warrants is increasing in unit IPO firms' riskiness.

JEL Classification: G32, G12

Suggested Citation

Taylor, Stephen L. and Lee, Martin and Lee, Philip John, Unit Initial Public Offerings: Staged Equity or Signaling Mechanism (August 2000). Available at SSRN: https://ssrn.com/abstract=238108 or http://dx.doi.org/10.2139/ssrn.238108

Stephen L. Taylor (Contact Author)

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
61295143437 (Phone)
61295143513 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane

HOME PAGE: http://www.firn.org.au

Martin Lee

Andersen Consulting

Overland Park, KS 66210
United States

Philip John Lee

University of Sydney ( email )

Discipline of Accounting
Faculty of Economics and Business (H69)
Sydney NSW 2006
+61 2 9351 3067 (Phone)
+61 2 9351 6638 (Fax)

HOME PAGE: http://www.econ.usyd.edu.au/staff/philipl

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