The average investor reaction is neutral to primary offerings by firms with managerial incentives closely tied to the shareholder value. Investors react negatively (1) when there are insufficient managerial ownership stakes to deter misuse of SEO proceeds and (2) when there are negative signals...

While IPOs have been underpriced by more than 10% during the past two decades, we find that in a sample of more than 2,000 IPOs from 1980 to 1997, the median IPO was significantly overvalued at the offer price relative to valuations based on industry peer price multiples. This overvaluation...