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Under-Diversification and Retention Commitments in IPOs

Published online by Cambridge University Press:  06 April 2009

Lucie Courteau
Lucie Courteau
Affiliation:
Faculty of Administration, University of Ottawa, Ottawa, Ontario K1N 6N5, Canada.
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Abstract

This study is an extension of Leland and Pyle's (1977) signaling model. It introduces, in addition to the retained ownership, the length of the holding period to which the owner commits in the prospectus as a signal of firm value. The length of the holding period is found to be a signaling mechanism that complements ownership retention. Depending on the information structure of the firm, the entrepreneur may prefer to commit to a holding period longer than the minimum required by securities regulations.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 4 , December 1995, pp. 487 - 517
Copyright
Copyright © School of Business Administration, University of Washington 1995

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