Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings

52 Pages Posted: 5 Mar 2003

See all articles by Andrew J. Leone

Andrew J. Leone

University of Miami

Steve Rock

University of Colorado at Boulder - Department of Accounting

Michael Willenborg

University of Connecticut - Department of Accounting

Multiple version iconThere are 3 versions of this paper

Date Written: October 2006

Abstract

We use the context of a company's IPO of equity securities as a capital-markets setting to empirically study the economic consequences of endogenous disclosure. In particular, we examine the relation between the extent of dollar detail an IPO issuer provides regarding their intended use of proceeds and first-day underpricing. We document substantial variation in the specificity of this disclosure and find that an increase in such specificity is associated with lower IPO underpricing. Overall, our results suggest that IPOs that provide specific use-of-proceeds disclosures have less ex ante uncertainty, in the sense that these disclosures help investors estimate the dispersion of secondary market values. Our paper contributes to the empirical accounting literature by documenting an association between voluntary disclosure and what is arguably the foremost cost of raising initial equity capital (i.e., IPO underpricing).

Keywords: Agency Costs, Disclosure, Information Asymmetry, Initial Public Offerings, Underpricing, Use of Proceeds

JEL Classification: D82, G32, G12, G14, M41

Suggested Citation

Leone, Andrew J. and Rock, Steven Karl and Willenborg, Michael, Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings (October 2006). Simon School Research Paper Series No. FR 03-07. Available at SSRN: https://ssrn.com/abstract=384620 or http://dx.doi.org/10.2139/ssrn.384620

Andrew J. Leone

University of Miami ( email )

School of Business
Coral Gables, FL 33146
United States
305-284-3101 (Phone)

HOME PAGE: http://sbaleone.bus.miami.edu

Steven Karl Rock

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States
303-735-5009 (Phone)
303-492-5962 (Fax)

Michael Willenborg (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269
United States
860-486-3020 (Phone)
860-486-4838 (Fax)

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