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IPO Underpricing, Disclosure, and Litigation Risk

39 Pages Posted: 29 Apr 2009 Last revised: 12 Nov 2013

James C. Spindler

University of Texas School of Law; McCombs School of Business, University of Texas at Austin

Date Written: May 13, 2009

Abstract

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.

Suggested Citation

Spindler, James C., IPO Underpricing, Disclosure, and Litigation Risk (May 13, 2009). USC CLEO Research Paper No. C09-9; USC Law Legal Studies Paper No. 09-10; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=1396818 or http://dx.doi.org/10.2139/ssrn.1396818

James C. Spindler (Contact Author)

University of Texas School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

McCombs School of Business, University of Texas at Austin ( email )

Austin, TX 78712
United States

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