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The Informational Content of Initial Public Offerings
Author(s) -
GALE IAN,
STIGLITZ JOSEPH E.
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb05066.x
Subject(s) - pooling , equity (law) , economics , equity capital , financial economics , microeconomics , monetary economics , business , initial public offering , computer science , artificial intelligence , political science , law
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.