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
Date Written: May 1, 2017
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: Suggested Citation