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


  • We thank our referee, Reena Aggarwal, Bill Baber, Philip Berger (Editor), Sanjai Bhagat, Larry Brown, Patricia Dechow, Peter Easton, Don Francese, Sean Griffith, Lynn Hannan, Stephen Hansen, Prem Jain, Boudewijn Janssen, Chris Jones, Sok-Hyon Kang, Krishna Kumar, Frank Moers, Siva Nathan, Lee Pinkowitz, George Plesko, Sundaresh Ramnath, Srini Sankaraguruswamy, Siew Hong Teoh, Charlie Wasley, Joe Weber, David Williams and Terri Yohn and conference participants at Florida State University, Georgetown University, George Washington University, Georgia State University, Ohio State University, Universitat Maastricht, University of Oregon, and University of Rochester.


We use the context of a company's initial public offering (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).