Although there were many other interesting results from our research, the last one I'll discuss here is how CFOs viewed signaling. Academics have created complex signaling models that rely heavily on advanced mathematical modeling. We hoped to see which of these models aligned with CFO perception. But CFOs felt the strongest positive signal was historical earnings, and the second-strongest positive signal was using a prestigious underwriter.

CFOs felt the strongest negative signal was when insiders sold shares in the IPO. When insiders sell shares in the actual IPO and don't wait until after the lockup, investors may reason the insiders are dumping over-valued shares.

If you would like to learn more about what CFOs think about the IPO process, the full citation to my academic article is: "Initial Public Offerings: An Analysis of Theory and Practice," Jim Brau and Stan Fawcett, Journal of Finance, Vol. 61 (February) 2006, pp. 399-436. The citation to a practitioner piece I wrote using the same data is: "Evidence from What CFOs Think about the IPO Process: Practice, Theory, and Managerial Implications," Jim Brau and Stan Fawcett, Journal of Applied Corporate Finance, Vol. 18, No. 3 (Summer) 2006, pp. 107-117.

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Jim Brau is affiliated with the BYU Center for Entrepreneurship. He can be reached via e-mail at jbrau@byu.edu.