Department of Economics, University of Wisconsin and Department of Economics, Stanford University, respectively. We are grateful to Don Hester, Nobu Kiyotaki, René Stulz (the editor), and an anonymous referee for helpful suggestions and comments.
The Informational Content of Initial Public Offerings
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 2, pages 469–477, June 1989
How to Cite
GALE, I. and STIGLITZ, J. E. (1989), The Informational Content of Initial Public Offerings. The Journal of Finance, 44: 469–477. doi: 10.1111/j.1540-6261.1989.tb05066.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
The ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once. A model is developed in which there is price risk from holding equity between periods. When the uncertainty is small, there must be pooling in the first period. When uncertainty is large, the pooling equilibria dominate the separating equilibrium.