Initial Public Offerings as a Web of Conflicts of Interest: An Empirical Assessment

2003 ◽  
Vol 13 (3) ◽  
pp. 289-314 ◽  
Author(s):  
Dan R. Dalton ◽  
S. Trevis Certo ◽  
Catherine M. Daily
Keyword(s):  
Moral Hazard ◽  
Initial Public Offerings ◽  
Conflicts Of Interest ◽  
Public Offerings ◽  
Empirical Assessment ◽  
Key Players

Abstract:While a ubiquitous phenomenon, initial public offerings (IPOs) have received no attention in the ethics literature. We provide an overview of a series of potential conflicts of interest that pervade the IPO process. We also report the results of an empirical assessment of IPOs and those elements that may inform a substantive moral hazard faced by key players in the period prior to and just after an IPO.

scholarly journals Asymmetric Information in the Market for IPOs

2019 ◽  
Vol 7 (3) ◽  
pp. 01-19
Author(s):  
Heather N Rhodes
Keyword(s):  
Asymmetric Information ◽  
Moral Hazard ◽  
Initial Public Offerings ◽  
Wealth Effect ◽  
Matched Sample ◽  
Going Public ◽  
Public Offerings ◽  
Sarbanes Oxley ◽  
The Difference ◽  
Selection Of

This study utilizes hand-collected ownership data to re-examine the signaling, agency and wealth effect theories in a matched-sample of initial public offerings (IPOs) issued in the U.S. prior to and following the passage of the Sarbanes-Oxley Act of 2002 (SOX). SOX provides some motivation for revisiting these topics because evidence exists that it may have affected the types of firms going public and ultimately the relatively importance of adverse selection and moral hazard, the asymmetric information problems with which these theories are concerned. Results on both the pre- and post-SOX samples are consistent with the signaling theory and evidence of a wealth effect exists in both eras. However, in contrast to results of studies conducted prior to SOX, both the pre- and post-SOX results give little credence to the agency theory, suggesting that SOX has not impacted investors’ concerns regarding moral hazard. Rather, the difference between the pre-SOX results and the results of previous studies suggests that SOX appeared to reduce moral hazard concerns only through its effect on the self-selection of firms going public.

Lockups Revisited

2005 ◽  
Vol 40 (3) ◽  
pp. 519-530 ◽  
Author(s):  
James C. Brau ◽  
Val E. Lambson ◽  
Grant McQueen
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Initial Public Offerings ◽  
Empirical Support ◽  
Seasoned Equity Offerings ◽  
Comparative Statics ◽  
Equity Offerings ◽  
Public Offerings ◽  
Theoretical Predictions ◽  
Adverse Selection Problem

AbstractLockups are agreements made by insiders of stock-issuing firms to abstain from selling shares for a specified period of time after the issue. Brav and Gompers (2003) suggest that lockups are a bonding solution to a moral hazard problem and not a signaling solution to an adverse selection problem. We challenge this conclusion theoretically and empirically. In our model, insiders of good firms signal by putting and keeping (locking up) their money where their mouths are. Our model yields two comparative statics: lockups should be shorter when a firm is i) more transparent and/or ii) more risky. Using a sample of 4,013 initial public offerings and 3,279 seasoned equity offerings between 1988 and 1999, we find empirical support for our theoretical predictions.

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