Do Differences in Institutional and Legal Environments Explain Cross-Country Variations in IPO Underpricing?

48 Pages Posted: 23 Aug 2007

See all articles by Christian Hopp

Christian Hopp

University of Vienna

Axel Dreher

Heidelberg University

Date Written: August 2007

Abstract

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.

Keywords: IPO underpricing, institutions, legal infrastructure, panel data

JEL Classification: G15, H2, G1

Suggested Citation

Hopp, Christian and Dreher, Axel, Do Differences in Institutional and Legal Environments Explain Cross-Country Variations in IPO Underpricing? (August 2007). CESifo Working Paper Series No. 2082, Available at SSRN: https://ssrn.com/abstract=1006987 or http://dx.doi.org/10.2139/ssrn.1006987

Christian Hopp

University of Vienna ( email )

Brünner Straße 72
Vienna, A-1210
Austria

Axel Dreher (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

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