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

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Table 2 Management shareholdings data and First Call research coverage The sample consists of 618 firms that completed an 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. Panel A contains the number of common shares outstanding, the number of shares held by management following the IPO, and the percentage of shares outstanding held by management. We also provide the number of options to purchase shares held by management following the IPO, the weighted-average exercise price of the options, and the number of options as a percentage of the shares offered in the IPO and as a percentage of the total shares outstanding. Panel B contains details of research coverage, as provided by First Call, from the time of the IPO through one month following the expiration of the lockup provision. Data are provided for firms with First Call coverage. The total First Call mentions is the number of comments that mention the firm during the period including industry comments. The number of brokers is specific to brokers making recommendations (buy, hold, sell) on the firm. The data are partitioned by lead underwriter and non-lead underwriter analyst recommendations. Panel C contains the number of shares sold by insiders from two months prior through two months following the expiration of the lockup provision. It also reports the shares sold as a percentage of total shares outstanding. 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. Observations Kruskalt-test Full Sample Internet IPOs Non-Internet IPOs Wallis Mean Median Mean Median Mean Median p -value p -value Panel A: Management Shareholdings Data 618 303 315 Shares Outstanding (000) 26,938 15,258 31,689 16,883 22,354 13,008 [0.0575] [0.0009] Shares Held by Management (000) 10,610 6,741 12,073 8,037 9,927 5,999 [0.0095] [0.0001] Percent Shares Held by Management 43.2% 47.1% 43.6% 47.7% 42.8% 45.7% [0.6706] [0.7487] Options Held by Management (000) 2,594 1,464 3,257 1,901 2,089 1,214 [0.0001] [0.0001] Weighted Average Exercise Price $4.68 $3.20 $4.02 $2.95 $5.40 $3.75 [0.0034] [0.0043] Options as % of Shares Offered 55.5% 41.1% 64.6% 47.9% 46.7% 30.0% [0.0013] [0.0001] Options as % of Shares Outstanding 13.4% 9.9% 15.3% 11.4% 11.7% 7.9% [0.0027] [0.0001] Panel B: First Call Research Coverage Firms with No First Call Coverage 99 (16.0%) 48 (15.8%) 51 (16.2%) Firms with First Call Coverage 519 (84.0%) 255 (84.2%) 264 (83.8%) Total First Call Mentions 83.81 60.00 104.46 79.00 63.87 40.50 [0.0001] [0.0001] Number of Brokers 3.98 4.00 4.49 4.00 3.49 3.00 [0.0001] [0.0001] Recs. by Lead Analyst 5.44 5.00 5.85 5.00 5.05 5.00 [0.0022] [0.0402] Recs. by Non-Lead Analysts 12.38 10.00 14.29 12.00 10.55 9.00 [0.0001] [0.0004] Panel C: Insider Selling Around Lockup Expiration Firms with No Inside Selling at Lockup Exp. 366 (59.2%) 174 (57.4%) 192 (61.0%) Firms with Selling At Lockup Exp. 252 (40.8%) 129 (42.6%) 123 (39.0%) Total Insider Sales 1,292,310 410,342 1,394,287 683,750 1,185,358 223,751 [0.3893] [0.2121] Percent of Shares Outstanding Sold 5.89% 1.91% 6.40% 2.03% 5.35% 1.34% [0.3823] [0.2423]
Table 3 OLS regressions of IPO underpricing The sample consists of 618 firms that completed an IPO between January 1994 and December 1999. The dependent variable in the regressions is the offer to open percentage return on the day of the IPO. Independent variables include the log of the IPO proceeds in millions of dollars, the rank of the lead underwriter, an indicator for internet-related companies, an indicator for venture capital backed IPOs, and the number of co-managers at the IPO. Calendar year indicator variables (the base year is 1996) are included but not reported. The variables of interest are shares and options held by management as a percentage of the number of shares outstanding, and the percentage of shares sold in the IPO that were secondary shares. The table contains the parameter estimates from OLS regressions with p -values in brackets. Model 1 Model 2 Model 3 Calendar Year Dummies yes yes yes Intercept -32.29 -24.48 -36.39 [0.0584] [0.1124] [0.0323] Log of IPO Proceeds -3.27 -2.30 -1.08 [0.5231] [0.6507] [0.8333] Lead Underwriter Rank 9.79 8.85 8.64 [0.0001] [0.0001] [0.0001] Internet Indicator 18.43 17.55 18.01 [0.0030] [0.0044] [0.0035] Venture Capital Backed IPO Indicator 0.61 -0.47 -1.63 [0.9227] [0.9400] [0.7946] Number of Co-Managers at IPO -6.786 -7.281 -7.153 [0.0192] [0.0116] [0.0130] Secondary Shares at IPO -0.10 -0.10 -0.08 [0.5827] [0.5931] [0.6690] Percent Management Shares Held 0.22 0.20 [0.0716] [0.0965] Percent Management Options Held 0.17 0.16 [0.0015] [0.0020] p -value for Joint Significance of Management Shares and Options Held [0.0017] Adj. R-Squared 16.28% 17.22% 17.46%
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 and 36: Price D 2 g(P 1 - P 0 ) Underpricin
Page 37: Table 1 Sample statistics, internet
Page 41 and 42: Table 5 IPO research coverage using
Page 43 and 44: Table 7 Robustness of IPO research

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