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Joining the Conversation: How Quiet Is the IPO Quiet Period?

66 Pages Posted: 10 Dec 2014  

Matthew C. Cedergren

University of Pennsylvania - Accounting Department

Date Written: December 9, 2014

Abstract

This study evaluates the IPO quiet period, which restricts managers' ability to publicly communicate in the weeks immediately following the IPO. I investigate the effectiveness of and compliance with the quiet period for a sample of 3,380 IPOs from 1996 through 2011, and report several key findings. Firms significantly increase their communication immediately after the quiet period expires, and this manifests in more firm-specific information in returns. While this suggests the quiet period rules are effective on average, I find that there is non-random variation across firms in this effectiveness. In particular, the marginal effect of increased communication on firm-specific information processed by the market is greater for firms which are harder to value or receive less-than-expected attention in the aftermarket. Moreover, notwithstanding overall effectiveness, I find wide variation in the level of compliance with the quiet period, and that firms benefit from non-compliance. In particular, firms with more quiet period "loudness" obtain more analyst attention and are more likely to meet or beat future consensus forecasts. Collectively, the results suggest that [1] the quiet period rules prevent investors from learning useful information in a timely manner, and [2] a lack of SEC enforcement provides advantages to firms that violate the spirit, if not the letter, of the rules. This calls into question whether the IPO quiet period rules — essentially unchanged for over 80 years — remain relevant and useful in modern equity markets.

Keywords: disclosure, quiet period, IPO, stock return synchronicity, press release, regulation

JEL Classification: M41, M48, K22, G14

Suggested Citation

Cedergren, Matthew C., Joining the Conversation: How Quiet Is the IPO Quiet Period? (December 9, 2014). 2015 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2536004 or http://dx.doi.org/10.2139/ssrn.2536004

Matthew C. Cedergren (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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