N. Jegadeesh et al., AN EMPIRICAL-INVESTIGATION OF IPO RETURNS AND SUBSEQUENT EQUITY OFFERINGS, Journal of financial economics, 34(2), 1993, pp. 153-175
Several recent papers present signaling models in which firms underpri
ce their initial public offerings of equity (IPOs) so that they can su
bsequently 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 offe
rings. Although these results are consistent with the implications of
the signaling hypotheses, the economic significance appears weak. We c
onduct additional tests to evaluate other explanations for these findi
ngs and find the alternatives more compelling.