Abstract
This paper examines the effect of a change in the ownership of IPO's insiders on the value of firms during four years following the IPO. The changes in the ownership are deducted from the crossing of legal threshold. From a sample of 120 IPOs that took place during Internet bubble, 463 crossings of threshold were identified as events on the observation period. The market reaction to the announcement of these crossings has been studied and a buy-and-hold abnormal return has been calculated for 100 days to 500 days after the announcement. Similarly, a buy-and-hold abnormal return has been calculated for 100 days to 500 days after the IPO date according initial and subsequent sales by insiders. We find no evidence suggesting that insiders knowingly issue overvalued equity at IPO date. However, there is a weak evidence, but statistically significant, that suggests that insiders acquire private information during the first years of flotation and have the ability to take advantage of it by selling overvalued equity. The entrepreneurs seems to be the most informed on the future value of the firm. However, the changes in the ownership of banks and venture capitalists are not followed by significant change of firm's long term value.
Published Version
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