Unintended Regulatory Consequences: Evidence from the Korean IPOs

39 Pages Posted: 28 Oct 2011

See all articles by Kiyoung Chang

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business

Yong-Cheol Kim

University of Wisconsin-Milwaukee

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

John Harris Thornton

Kent State University

Date Written: October 26, 2011

Abstract

We examine IPOs in Korea during the period August 2000-January 2002. We conclude that the high level of underpricing in Korean IPOs is the unintended consequence of regulations designed to promote fairness. Two aspects of the regulations distort the process – an “essential price” formula that severely understates the value of the firm; and, bid exclusion rules that give investors a strong incentive to cluster their bids so as to avoid being excluded from the offering. During our sample period the rules were changed somewhat. The result was a change to gaming behavior and somewhat less underpricing.

Keywords: IPO, Underpricing, Book Building, Institutional Investor, Regulatory Changes

JEL Classification: G15, G24, G28

Suggested Citation

Chang, Kiyoung and Kim, Yong-Cheol and Kim, Young Sang and Thornton, John Harris, Unintended Regulatory Consequences: Evidence from the Korean IPOs (October 26, 2011). Pacific-Basin Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1949582

Kiyoung Chang

University of South Florida Sarasota-Manatee - College of Business ( email )

8350 N. Tamiami Trail, SMC-C263
Sarasota, FL 34243-2025
United States
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9413594367 (Fax)

Yong-Cheol Kim

University of Wisconsin-Milwaukee ( email )

School of Business Administration
P.O. Box 742
Milwaukee, WI 53201-0742
United States
414-229-4997 (Phone)
414-229-6957 (Fax)

Young Sang Kim (Contact Author)

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

John Harris Thornton

Kent State University ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1214 (Phone)
330-672-9806 (Fax)

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