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The Informational Content of Initial Public Offerings

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  • Ian Gale
  • Joseph Stiglitz

Abstract

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.

Suggested Citation

  • Ian Gale & Joseph Stiglitz, 1990. "The Informational Content of Initial Public Offerings," NBER Working Papers 3259, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3259
    Note: ME
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    References listed on IDEAS

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    1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    2. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
    3. Welch, Ivo, 1989. " Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 421-449, June.
    4. Grossman, Sanford J. & Perry, Motty, 1986. "Sequential bargaining under asymmetric information," Journal of Economic Theory, Elsevier, vol. 39(1), pages 120-154, June.
    5. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
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