The Value of Capital Market Regulation: IPOs versus Reverse Mergers

Journal of Empirical Legal Studies, 9 (1) 2012: 56-91.

49 Pages Posted: 29 Mar 2011 Last revised: 13 Apr 2012

See all articles by Cécile Carpentier

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Douglas J. Cumming

Florida Atlantic University

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Multiple version iconThere are 2 versions of this paper

Date Written: November 25, 2010

Abstract

We analyze the economic consequences of disclosure and regulation within a context of significant information asymmetry and lenient regulation. In Canada, firms can enter the stock market at a pre-revenue stage by fulfilling each of the requirements of an initial public offerings or using reverse mergers. This backdoor listing method implies a smoother oversight by the securities commission and a shorter process based on private placements. Controlling for several dimensions, including self-selection, we find that the choice of the listing method and regulation strictness significantly influence the value and long-run performance of newly listed firms. These results are consistent with theories suggesting that a commitment by a firm to a stricter regulatory oversight lowers the information asymmetry component of the cost of capital, reduces the heterogeneity of expectations and mispricing.

Keywords: Disclosure, Securities Regulation, Listing Standards, Initial Public Offerings, Reverse Mergers

JEL Classification: G24, G32, G14, G15

Suggested Citation

Carpentier, Cécile and Cumming, Douglas J. and Suret, Jean-Marc, The Value of Capital Market Regulation: IPOs versus Reverse Mergers (November 25, 2010). Journal of Empirical Legal Studies, 9 (1) 2012: 56-91. . Available at SSRN: https://ssrn.com/abstract=1796923

Cécile Carpentier

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Jean-Marc Suret

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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