The Oversight Role of Regulators: Evidence from SEC Comment Letters in the IPO Process

56 Pages Posted: 6 Mar 2015 Last revised: 17 Jul 2018

See all articles by Bing Li

Bing Li

City University of Hong Kong (CityUHK)

Zhenbin Liu

Hong Kong Baptist University

Date Written: May 1, 2017

Abstract

This study investigates how regulatory oversight affects the price formation of initial public offerings (IPOs). We provide evidence on the oversight role of the US Securities and Exchange Commission (SEC) by examining the effects of comment letters issued by the SEC in the process through which companies are initially listed. We find that IPO issuers reduce their offer price if they receive comment letters. The reduction in price from the IPO filing date to the final issue date is greater when the IPO firm has more correspondence with the SEC. The pricing impact of SEC comment letters is more pronounced for IPO issuers with greater hyping incentives. Moreover, we find that IPO firms that receive more comment letters have similar levels of underpricing and outperform over the long run after the issue date, compared with IPOs with fewer comment letters.

Keywords: SEC comment letters, disclosure, information asymmetry, hyping, price formation

JEL Classification: M41, K22, G38

Suggested Citation

Li, Bing and Liu, Zhenbin, The Oversight Role of Regulators: Evidence from SEC Comment Letters in the IPO Process (May 1, 2017). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2536893 or http://dx.doi.org/10.2139/ssrn.2536893

Bing Li (Contact Author)

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Department of Accountancy, AC3
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/bingli/

Zhenbin Liu

Hong Kong Baptist University ( email )

Kowloon Tong, Kowloon
Hong Kong

HOME PAGE: http://aclw.hkbu.edu.hk/eng/faculty/admin-details.jsp?id=zbliuHKB&cv=00069&cid=306&cp=1

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