Market Manipulation Rules and IPO Underpricing
54 Pages Posted: 11 Sep 2020 Last revised: 20 Dec 2020
Date Written: August 2, 2020
Using a large sample of 13,459 initial public offerings (IPOs) from 37 countries, we find that trading rules on market manipulation reduce IPO underpricing. The effect is weaker for IPOs certified by reputable intermediaries, in countries with greater shareholder rights protection, better financial reporting quality, and after the adoption of International Financial Reporting Standards. Better trading rules on market manipulation are also related to higher IPO proceeds, subscription-level, and trading volume, lower IPO listing fees, and better long-term post-IPO performance. Our findings are consistent with the notion that exchange trading rules mitigate information asymmetry problems for investors, resulting in lower IPO underpricing.
Keywords: Exchange trading rules; market manipulation; IPO pricing; information asymmetry
JEL Classification: G10, G14, G15, G30
Suggested Citation: Suggested Citation