Voluntary Disclosure and Firm Visibility: Evidence from Initial Public Offerings

Legal academics and practitioners have long emphasized the important role that disclosure plays in the initial public offering (IPO) process. Issuers and their underwriters provide information via a prospectus and corresponding IPO roadshow to mitigate the information gap between the insiders of the firm and prospective investors. Evidence across a range of studies finds that the reduction in information asymmetry lowers firms’ issuance costs (cost of capital) and allows them to raise more equity in the offering. Studies are largely silent, though, on how investors learn of the IPO firm as a potential investment. Classic finance theory suggests that before … Read more