United States: Pre-IPO Voluntary Disclosures By Private Companies

In a recent paper titled, "Voluntary Disclosure and Firm Visibility: Evidence from Firms Pursuing an Initial Public Offering," authors Michael Dambra, Bryce Schonberger, and Charles Wasley review the benefits of pre-IPO press releases and investor meetings. Based on a sample of 569 IPOs undertaken from 2004 to 2014, the median IPO company issues two press releases in the year before the IPO and 16.7 percent of the companies attend an investor conference in that year. The authors conclude that private companies that engage in pre-IPO communications about their business and products enhances firm visibility and results in, among other things, more positive filing price revisions during the IPO process, more dispersed investor ownership, and greater coverage in the post-IPO period. The authors also conclude that in contrast to concerns that removing restrictions on communications in proximity to securities offerings would encourage companies to hype their stock prior to raising capital, there is no evidence that private companies that engage in pre-prospectus disclosures display inflated prices that reverse over time. As we have suggested in other posts, perhaps, in connection with other capital formation initiatives, the time may be ripe for the Securities and Exchange Commission to revisit securities offering reform and revamp the communications rules and safe harbors.

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