Cross-Country IPOs: What Explains Differences in Underpricing?

44 Pages Posted: 24 May 2008 Last revised: 8 Jan 2018

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Lili Dai

University of New South Wales (UNSW)

Keshab Shrestha

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: June 10, 2009

Abstract

We study the impacts of country-level information asymmetry, investors' home-country bias, effectiveness of contract enforcement mechanisms, and accessibility of legal recourse on IPO underpricing in 36 countries around the globe. We find evidence consistent with all four of our hypotheses. First, we find a positive and significant effect of country-level information asymmetry on IPO underpricing. Second, our empirical evidence is consistent with the agency-cost-based explanation of IPO underpricing. We find that lower cost to entice the block holders, measured by domestic investors' home-country bias, reduces IPO underpricing. Third, we find that effective contract enforcement mechanisms help to reduce IPO underpricing. Finally, we find a positive relation between the accessibility of legal recourse and IPO underpricing.

Keywords: IPO Underpricing, Information Asymmetry, Home-Country Bias, Law Enforcement, Litigation Risk

JEL Classification: G15; G28; G32

Suggested Citation

Banerjee, Suman and Dai, Lili and Shrestha, Keshab, Cross-Country IPOs: What Explains Differences in Underpricing? (June 10, 2009). Journal of Corporate Finance, Vol. 17, No. 5, 2011. Available at SSRN: https://ssrn.com/abstract=1134332 or http://dx.doi.org/10.2139/ssrn.1134332

Suman Banerjee (Contact Author)

Stevens Institute of Technology ( email )

525 River Street
Hoboken, NJ 07030
United States
2012613689 (Phone)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Lili Dai

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/ldaiprofile

Keshab Shrestha

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

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