Legal Opportunism, Litigation Risk, and IPO Underpricing

28 Pages Posted: 29 Jul 2014

See all articles by Thomas John Walker

Thomas John Walker

Concordia University, Quebec - Department of Finance

Harry J. Turtle

Colorado State University, Fort Collins - Department of Finance & Real Estate

Kuntara Pukthuanthong

University of Missouri, Columbia

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business; University of Exeter Business School - Department of Finance

Date Written: July 28, 2014

Abstract

We consider the importance of legal opportunism as an explanation for observed litigation following a large sample of initial public offerings (IPOs). We characterize legal opportunism as litigation based on the potential to recover losses after negative stock price developments rather than the legal merits. We find the most important predictors of post-IPO litigation activity (both likelihood and settlement amounts) to be ex post legal stakes (i.e., monetary damages plaintiffs could claim), and the remaining wealth available in the firm. Our results suggest a disturbing role for legal activity and starkly contrast existing models of IPO underpricing that focus on ex ante risk factors.

Keywords: Initial Public Offerings; Securities Regulation; Securities Litigation

JEL Classification: G18; G24; K22

Suggested Citation

Walker, Thomas John and Turtle, Harry J. and Pukthuanthong, Kuntara and Thiengtham, Dolruedee, Legal Opportunism, Litigation Risk, and IPO Underpricing (July 28, 2014). Journal of Business Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2473368

Thomas John Walker

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

Harry J. Turtle

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Kuntara Pukthuanthong (Contact Author)

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

HOME PAGE: http://https://kuntara.weebly.com

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

University of Exeter Business School - Department of Finance

Streatham Court
Exeter, EX4 4PU
United Kingdom

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