Which one of the following statements is true?

Question

Quizplus · Accepted Answer

A) Pre-IPO shareholders may use the size of their retained ownership as a signal of firm quality.
B) There is evidence that the incumbent shareholders use IPO underpricing to keep ownership by outsiders dispersed.
C) A lock-in agreement prevents the pre-IPO shareholders from selling their remaining shares during a certain period following the IPO.
D) All of the above are correct.

B) There is evidence that the incumbent shareholders use IPO underpricing to keep ownership by outsiders dispersed. This is true as research has shown that underpricing in IPOs can help to ensure a wider distribution of ownership, which can help to mitigate the risk of having large blocks of shares held by a small number of investors.

C) A lock-in agreement prevents the pre-IPO shareholders from selling their remaining shares during a certain period following the IPO. This is true as many IPOs include lock-up agreements that prohibit insiders and other large shareholders from selling their shares for a certain period of time after the IPO. This is done to prevent a flood of shares from hitting the market immediately after the offering, which could drive down the stock price.

Which One of the Following Statements Is True