Pre-Prospectus Disclosure and Firm Visibility: Evidence from Private Firms Pursuing an Initial Public Offering
53 Pages Posted: 2 Aug 2018 Last revised: 10 Jan 2019
Date Written: January 1, 2019
We develop predictions for the benefits of voluntary disclosures made prior to filing any regulated financial information via a prospectus by firms pursuing an initial public offering (IPO). We draw on existing disclosure literature and predictions by Merton (1987) regarding the benefits to firms of enhancing visibility with prospective investors. For a sample of IPOs from 2004 – 2016 we find that pre-prospectus press release disclosures are common and positively associated with pre-IPO capital raising, intangible asset investment, and retaining a prestigious underwriter. Consistent with Merton (1987), we find that pre-prospectus disclosures are positively associated with EDGAR search activity by prospective investors, IPO pricing, and post-IPO improvements in firm visibility. On the other hand, such disclosures have little discernible effect on adverse selection costs following the offering, suggesting that pre-prospectus voluntary disclosures benefit firms by enhancing visibility, but not by mitigating informational asymmetries.
Keywords: voluntary disclosure; initial public offering; press releases; investor conferences; visibility; information asymmetry
JEL Classification: M4, G14, G32
Suggested Citation: Suggested Citation