Competitive threat and strategic disclosure during the IPO quiet period

This study examines the disclosure behavior of rival firms identified by an initial public offering (IPO) candidate in its registration statement. We hypothesize that identified rivals have incentives to preempt the competitive effects of the IPO and do so by disclosing more positive information during the IPO quiet period when the IPO candidate faces communication restrictions. We find that the tone of disclosures by identified rivals becomes more positive during the quiet period, and reverses after the quiet period. We also find that identified rivals initiate highly positive press releases about their product market condition during the quiet period, with the tone reversal being mainly driven by identified rivals experiencing their competitor’s IPO withdrawal. Together, these results suggest that identified rivals’ concerns over product market competition drive their strategic disclosure behavior. Further evidence indicates that this behavior hurts the IPO candidate and benefits the identified rivals. Thus, while protecting investors and facilitating market efficiency, this quiet period regulation can become an opportunity for industry rivals to influence the IPO process and market competition.