Strategic IPO underpricing, information momentum, and lockup ...

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Insider Trading Post-IPO 50,000,000 40,000,000 Shares 30,000,000 20,000,000 10,000,000 - 2 3 4 5 6 7 8 9 10 11 12 Months Relative to IPO 1,400 1,200 1,000 Transactions 800 600 400 200 - 2 3 4 5 6 7 8 9 10 11 12 Months Relative to IPO Open Market Sales Open Market Purchases Fig. 2. Open market sales and purchases by insiders following IPO. The sample consists of 618 firms that completed an initial public offering (IPO) between January 1994 and December 1999. The top graph contains aggregate open-market shares sold and purchased by insiders as reported on the Dialogue Insider Trading Monitor across the 618 firms in our sample. The bottom graph contains the number of open-market sale and purchase transactions reported. Data are from months two through 12 following the IPO.
Table 1 Sample statistics, internet and non-internet related IPOs The sample consists of 618 firms that completed an initial public offering (IPO) between January 1994 and December 1999. We include all internet-related IPOs and a matched sample of non-internet IPOs based on offering size and IPO date. Data presented include the mean and median offer price per share, the number of shares offered in the IPO, the number of shares outstanding following the IPO, the proceeds raised in the IPO, the market value of equity post IPO, the percentage change in price from the mid-point of the initial filing range to the offer price, the offer to open return at the IPO, the day one open to close price-only return, the percentage of the sample that was backed by venture capital prior to the IPO, the percentage of shares sold at the IPO that were secondary shares, the day one total trading volume as a percentage of the number of shares offered, the number of days in the lockup provision, and the six-month return following the IPO (measured using the first closing market price). p -values for a parametric and nonparametric test of the null hypothesis that the internet sample is equal to the non-internet sample are provided. Kruskalt-test Full Sample Internet IPOs Non-Internet IPOs Wallis Mean Median Mean Median Mean Median p -value p -value Observations 618 303 315 Offer Price 14.00 14.00 13.92 14.00 14.06 14.00 [0.7446] [0.3891] Shares Offered (000) 4,756 4,000 4,917 4,000 4,601 4,000 [0.2478] [0.0942] Shares Outstanding (000) 26,938 15,258 31,689 16,883 22,354 13,008 [0.0575] [0.0009] Shares Offered as % Shares Outstanding 25.9% 22.0% 23.4% 20.2% 28.5% 25.0% [0.0001] [0.0002] Proceeds ($ million) 73.12 53.45 74.82 54.00 71.48 52.50 [0.5675] [0.4823] Market Value of Equity ($ million) 778.08 270.48 948.14 338.22 613.97 234.79 [0.0019] [0.0006] Change in Price from Initial Filing 13.6% 9.6% 18.3% 14.3% 9.1% 7.7% [0.0001] [0.0001] Offer Price to Opening Return 50.4% 23.3% 66.2% 33.3% 35.2% 17.6% [0.0001] [0.0001] First-Day Open to Close Return 3.4% 0.7% 2.7% 0.0% 4.0% 1.3% [0.3775] [0.0216] % Venture Backed 51.1% 58.7% 43.8% % Secondary Shares Offered 6.8% 0.0% 3.3% 0.0% 10.2% 0.0% [0.0001] [0.0001] Day 1 Volume as % Shares Offered 129.2% 114.2% 159.7% 147.6% 99.9% 88.3% [0.0001] [0.0001] Days in Lockup Provision 188.0 180.0 182.2 180.0 193.6 180.0 [0.1234] [0.3283] Six-Month Return 31.78% -1.12% 49.65% -4.23% 14.59% 0.00% [0.0006] [0.7917]
Page 1 and 2: Journal of Financial Economics 00 (
Page 3 and 4: We argue that substantial underpric
Page 5 and 6: analysts providing earnings estimat
Page 7 and 8: epresents the momentum effect. Mome
Page 9 and 10: max ( A + g( ∆P) − k( Q0 + Q2))
Page 11 and 12: The key implication of the Proposit
Page 13 and 14: There are several additional points
Page 15 and 16: the owner-manager for underpricing
Page 17 and 18: number of recommendations made spec
Page 19 and 20: The median firm in both subsamples
Page 21 and 22: III. Increased research coverage le
Page 23 and 24: IPOs (51) are defined as having und
Page 25 and 26: Mgrs) at the IPO. We expect that th
Page 27 and 28: We also control for the level of un
Page 29 and 30: The final implication of the model
Page 31 and 32: Our empirical results are that mana
Page 33 and 34: References Beatty, R.P., Welch, I.,
Page 35: Price D 2 g(P 1 - P 0 ) Underpricin
Page 39 and 40: Table 3 OLS regressions of IPO unde
Page 41 and 42: Table 5 IPO research coverage using
Page 43 and 44: Table 7 Robustness of IPO research

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