Is Signaling Always Beneficial for Quality Firms in the IPO Market?-Peking University HSBC Business School(PHBS)

Is Signaling Always Beneficial for Quality Firms in the IPO Market?

2023-05-22 11:27:51

Signaling theory is widely adopted in the study of initial public offerings (IPOs). Signal provides a separating equilibrium between high- and low-quality IPO firms. Hence, signaling theory implies that the willingness and motivation to signal is linearly related to an IPO firm’s quality. Drawing on the ideas of countersignaling, however, we argue that premium-quality IPO firms may act counter-intuitively and choose not to signal while achieving better IPO performance. Using a sample of U.S. IPOs, our findings provide support to this argument. In this regard, this study sheds further light on signaling strategy in the IPO market.

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