1989 Articles

The Informational Content of Initial Public Offerings

Stiglitz, Joseph E.; Gale, Ian

The ability of capital markets to distinguish firms of different value by 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.