Private information dissemination and the underpricing of seasoned equity offerings

Non-Deal Roadshows (NDRs) are an important investor relations activity where institutional investors gain access to the management of firms in whom they may invest. However, little is known about the firm-specific implications of the information conveyed from firms to institutional investors, by way of these private meetings. Therefore, I employ a novel dataset of NDR meetings to examine the relationship between NDR activity and the underpricing of seasoned equity offerings (SEOs) and show that NDR activity is associated with a reduction in SEO underpricing. This relationship is strengthened in firms with infrequent NDR activity, smaller firms, firms with greater analyst forecast errors, and in firms whose SEO underwriter was not the sponsor of their NDR meeting(s). The findings suggest that NDRs reduce the level of asymmetric information between firms and investors, resulting in a lower cost of raising new equity. The findings highlight the relevance of the NDR as an often overlooked mechanism through which firm-specific information is revealed, and they emphasize the need to further understand how private information dissemination affects capital market outcomes.