Factors affecting secondary share offerings in the IPO process

We investigate whether the sale of secondary shares in the IPO process is affected by an issuing firm's market-timing and window-dressing activities. We find that secondary share offerings in IPOs exhibit positive autocorrelation, and the positive autocorrelation is mainly affected by the overall stock market return. Similar to the IPO wave, this finding suggests that favorable market conditions attract existing pre-IPO shareholders to sell their shares in IPOs and cause the clustering of secondary share offering in IPOs. In addition, we find that window dressing has a significant effect on both the probability of secondary share offering and the proportion of secondary shares offered in an IPO. The result is robust after controlling for firm age, industry affiliation, and other factors. Our result also indicates that the number of firms offering secondary shares in IPOs, the probability of secondary share offerings, and the proportion of secondary shares offered in IPOs are significantly lower in the Internet bubble period.