The IPO Share Adjustment Puzzle

Approximately 60% of IPO issuers adjust primary share over the registration period and 15% adjust secondary shares. I find that first day returns are significantly positive related to primary share adjustments and insignificantly related to secondary share adjustments. These relations are puzzling as information production / revelation and agency theories that are used to explain price adjustments would predict significant negative relations. I introduce an explanation for the effect of share adjustments on first day returns that considers bargaining between issuers and new investors over gains arising because IPO proceeds can be invested in value adding projects