The Value of Capital Market Regulation: IPOs Versus Reverse Mergers

36 Pages Posted: 16 Feb 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

affiliation not provided to SSRN

Date Written: March 2012

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 prerevenue stage by fulfilling each of the requirements of an initial public offering 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, reducing the heterogeneity of expectations and mispricing.

Suggested Citation

Carpentier, Cécile and Cumming, Douglas J. and Suret, Jean‐Marc, The Value of Capital Market Regulation: IPOs Versus Reverse Mergers (March 2012). Journal of Empirical Legal Studies, Vol. 9, Issue 1, pp. 56-91, 2012. Available at SSRN: https://ssrn.com/abstract=2006125 or http://dx.doi.org/10.1111/j.1740-1461.2011.01247.x

Cécile Carpentier (Contact Author)

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

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

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

Jean‐Marc Suret

affiliation not provided to SSRN

No Address Available

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