Do Governments Time Their Stock Issues?

Several signaling models predict that firms underprice their initial offerings of equity deeply so that they can subsequently issue seasoned equity at more favorable terms. We test the implications of those models. We find a positive relation between IPO underpricing and the possibility of and the size of subsequent seasoned equity offerings. These results tend to consistent with the implications of the signaling hypotheses. The probability and size of subsequent seasoned equity offerings are closely related to stake sold at the initial public offering and to the external corporate governance variables. Those results are in sharp contrast with the market-feedback hypothesis raised by Jegadeesh, Weinsein, and Welch (1993). Curiously, aftermarket performance is irrelevant to subsequent stock issue decisions