Optimal Disclosure and Litigation Rules Around IPOs and SEOs

61 Pages Posted: 28 Nov 2017 Last revised: 24 Jun 2018

Onur Bayar

University of Texas at San Antonio, College of Business

Thomas J. Chemmanur

Boston College - Carroll School of Management

Paolo Fulghieri

University of North Carolina Kenan-Flagler Business School; European Corporate Governance Institute (ECGI)

Date Written: May 26, 2018

Abstract

We analyze the optimality of allowing disclosures of different types of information before equity offerings and of alternative rules for private securities litigation, where courts may penalize unduly optimistic disclosures ex post. In our model, firm insiders, with private information about variables affecting firm performance, may make claims (disclosures) about their future realization prior to new equity offerings. Equity offering prices are affected by firm disclosures; demand from institutional investors, with access to a costly disclosure verification technology; and demand from retail investors. We analyze self-regulation incentives and develop policy implications for disclosure regulation and for private securities litigation reform.

Keywords: Disclosure rules, initial public offerings (IPOs), seasoned equity offerings (SEOs), disclosure regulation, private securities litigation

JEL Classification: G24, G28, G32, G38

Suggested Citation

Bayar, Onur and Chemmanur, Thomas J. and Fulghieri, Paolo, Optimal Disclosure and Litigation Rules Around IPOs and SEOs (May 26, 2018). Available at SSRN: https://ssrn.com/abstract=3076684 or http://dx.doi.org/10.2139/ssrn.3076684

Onur Bayar (Contact Author)

University of Texas at San Antonio, College of Business ( email )

The University of Texas at San Antonio
One UTSA Circle
San Antonio, TX 78249
United States
210-458-6837 (Phone)
210-458-6320 (Fax)

Thomas J. Chemmanur

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Paolo Fulghieri

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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