This paper is based on Chapter 3 of my doctoral dissertation at the University of Missouri. I would like to thank Stephen Ferris (the Advisory Editor) and an anonymous reviewer for helpful suggestions and especially my advisor, John Howe, for guidance.
Underpricing, Share Overhang, and Insider Selling in Follow-on Offerings
Article first published online: 19 JUL 2005
Volume 40, Issue 3, pages 409–428, August 2005
How to Cite
Zhang, S. (2005), Underpricing, Share Overhang, and Insider Selling in Follow-on Offerings. Financial Review, 40: 409–428. doi: 10.1111/j.1540-6288.2005.00108.x
- Issue published online: 19 JUL 2005
- Article first published online: 19 JUL 2005
- initial public offering;
- seasoned equity offering;
- follow-on offering;
- prospect theory;
- information momentum;
- insider selling;
- event study
Prospect and information-momentum theories predict that insiders can offer fewer shares in an initial public offering (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 to 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.