Do Differences in Institutional and Legal Environments Explain Cross-Country Variations in IPO Underpricing?
University of Vienna
University of Heidelberg
CESifo Working Paper Series No. 2082
We empirically analyze the determinants of Initial Public Offering (IPO) underpricing using panel data for 29 countries over the period 1988-2005. Our hypotheses stress the importance of institutional and legal factors in explaining cross-country variations. We find that increased protection of shareholders and greater accounting transparency contribute negatively to variations in underpricing. When more information is available price discovery is facilitated, allowing for more effective corporate governance. Moreover, when equity markets perform well, investors anticipate companies and investment banks to time the market and require higher underpricing in return. Overall, we conclude that better investor protection and better institutional environments reduce the perceived risk of investing, and attenuate the problem of asymmetric information, thereby causing lower underpricing across countries.
Number of Pages in PDF File: 48
Keywords: IPO underpricing, institutions, legal infrastructure, panel data
JEL Classification: G15, H2, G1working papers series
Date posted: August 23, 2007
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