Underpricing, Share Overhang and Insider Selling in Follow-On Offerings

Posted: 24 May 2005

Abstract

Prospect and information-momentum theories predict that insiders can offer fewer shares in an IPO to create informational momentum and obtain higher prices in follow-on offerings. I find that dilution and insider participation in the IPO are negatively related to the number and size of follow-on offerings, consistent with the prediction. However, insider selling in follow-on offerings is positively related IPO selling, contrary to the theories. Returns around follow-on offering announcements are more negative for newly public firms than older firms, but for newly public firms do not differ by whether the announcement comes before or after the lockup expiration date.

Keywords: Initial public offering, seasoned equity offering, follow-on offering, prospect theory

JEL Classification: G14, G32

Suggested Citation

Zhang, Shaorong, Underpricing, Share Overhang and Insider Selling in Follow-On Offerings. Available at SSRN: https://ssrn.com/abstract=727344

Shaorong Zhang (Contact Author)

Marshall University ( email )

Huntington, WV 25755-2300
United States

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