The Impact of Institutional Quality on Initial Public Offerings
Thomas Jason Boulton
Indiana University Dept. of Finance
Chad J. Zutter
University of Pittsburgh - Finance Group
June 1, 2011
Country-level institutional quality is positively correlated with the underpricing of initial public offerings (IPOs). The association is strong for IPOs issued in developed markets, but nearly absent for emerging market IPOs. We hypothesize that extra-legal institutions, including financial reporting practices, law enforcement, public trust, and outside monitoring affect the availability and value of private benefits of control accessible to entrepreneurs, which in turn shapes the relation between institutional quality and IPO underpricing. Our evidence supports prior studies that suggest that underpricing is motivated, at least in part, by entrepreneurs’ desire for post-IPO control.
Number of Pages in PDF File: 46
Keywords: International finance, Initial public offerings, Governance, Investor protection
JEL Classification: G15, G24, G30, G32, G34working papers series
Date posted: April 23, 2010 ; Last revised: January 24, 2012
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