AN EMPIRICAL-INVESTIGATION OF IPO RETURNS AND SUBSEQUENT EQUITY OFFERINGS

Several recent papers present signaling models in which firms underprice their initial public offerings of equity (IPOs) so that they can subsequently issue scasoned equity at more favorable prices. We test the implications of these models. We find a positive relation between IPO underpricing and the probability and size of subsequent seasoned offerings. Although these results are consistent with the implications of the signaling hypotheses, the economic significance appears weak. We conduct additional tests to evaluate other explanations for these findings and find the alternatives more compelling.