IPO Underpricing, Disclosure, and Litigation Risk
James C. Spindler
University of Texas School of Law; McCombs School of Business, University of Texas at Austin
May 13, 2009
USC CLEO Research Paper No. C09-9
CELS 2009 4th Annual Conference on Empirical Legal Studies Paper
USC Law Legal Studies Paper No. 09-10
I find that U.S. IPO prospectus disclosure exhibits significant correlation with first day underpricing, consistent with theories of underpricing as caused by informational asymmetry. In particular, a 1 standard deviation increase in positive prospectus disclosure is associated with almost a third reduction in first day underpricing. More disclosure also has a significant positive relation to measures of informational completeness. Further, I show that the amount of disclosure may derive from litigation risk. Controlling for measures of litigation risk, more disclosure exhibits a significant and positive relation to IPO litigation, while absent controls the relation is negative – suggesting that the amount of disclosure responds to ex ante perceived risk of litigation.
Number of Pages in PDF File: 39working papers series
Date posted: April 29, 2009 ; Last revised: February 20, 2010
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