Equity Issue-Specific Versus Broad Regulatory Protections Against Expropriation Risk: International Evidence from SEOs

40 Pages Posted: 1 Mar 2013

See all articles by Manu Gupta

Manu Gupta

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate

Puneet Prakash

Missouri State University

Nanda K. Rangan

Virginia Commonwealth University

Date Written: February 27, 2013

Abstract

We compare non-issue specific (broad) investor protections against expropriation by firm’s insiders with regulations that specifically protect investors of new equity issues (issue-specific). Since in-nation regulations rarely change and are homogenous for all firms, it is difficult to compare issue- and non-issue-specific investor protection mechanisms in country-specific studies. We utilize cross-country differences in regulations to study the relative importance of issue-specific and broad regulatory protections. Using data on seasoned equity offerings (SEO), we find that SEO underpricing is related to broad protections. In particular, SEO underpricing is negatively (positively) related with the strength of ex-post (ex-ante) anti-self-dealing laws. Independent of broad protections, SEO underpricing is unaffected by issue-specific investor protections, that is, neither by disclosure requirements imposed on equity issuers nor by equity issue-specific liability rights conferred on investors. Interactions between broad protections and issue-specific protections indicate issue-specific protections reduce SEO underpricing only in countries with strong broad protections.

Suggested Citation

Gupta, Manu and Prakash, Puneet and Rangan, Nanda K., Equity Issue-Specific Versus Broad Regulatory Protections Against Expropriation Risk: International Evidence from SEOs (February 27, 2013). Journal of International Money and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2225830

Manu Gupta (Contact Author)

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284
United States

Puneet Prakash

Missouri State University ( email )

United States
65897 (Fax)

Nanda K. Rangan

Virginia Commonwealth University ( email )

2400 East Cary Street, Suite # 400
Richmond, VA 23223
United States
8048277410 (Phone)

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