Legal Perception and Finance: The Case of IPO Firm Value

64 Pages Posted: 18 May 2021 Last revised: 27 May 2021

See all articles by Gerhard Schnyder

Gerhard Schnyder

Loughborough University London - Institute for International Management; University of Cambridge - Centre for Business Research

Anna Grosman

Loughborough University London; Loughborough University - School of Business and Economics

Kun Fu

Imperial College

Mathias Siems

European University Institute (EUI); University of Cambridge - Centre for Business Research; European Corporate Governance Institute (ECGI)

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy

Date Written: May 15, 2021

Abstract

In this paper, we contribute to the literature on institutional determinants of IPO valuation. We introduce the concept of ‘legal signaling,’ which focuses on the perception of the quality of law and thus complements the existing institutional approaches to IPO valuation which consider the quality of the positive law (‘standard view’) and firm-level corporate governance practices (‘firm signaling view’). Our approach explicitly models the difference between the effect of the positive law and the effect of the perception of law on IPO value. Based on a worldwide longitudinal dataset of IPO performance across a large number of countries, we find strong support for the claim that the perception of the quality of law is more important than its actual quality to explain post-IPO firm value. This effect holds regardless of whether the law’s quality is correctly perceived or misperceived. Overall, our findings underscore the need for a more sophisticated theorization of the ways in which law affects entrepreneurial finance.

Keywords: law and finance, entrepreneurial finance, Initial Public Offerings (IPOs), corporate governance, perception, shareholder protection

JEL Classification: C23, G32, G34, G38, K22, K42, L26

Suggested Citation

Schnyder, Gerhard and Grosman, Anna and Fu, Kun and Siems, Mathias and Aguilera, Ruth V., Legal Perception and Finance: The Case of IPO Firm Value (May 15, 2021). European Corporate Governance Institute - Law Working Paper No. 587/2021, Available at SSRN: https://ssrn.com/abstract=3846913 or http://dx.doi.org/10.2139/ssrn.3846913

Gerhard Schnyder

Loughborough University London - Institute for International Management ( email )

Lesney Avenue
Here East
London, E15 2GZ
Great Britain
+44 (0)20 3805 1360 (Phone)

University of Cambridge - Centre for Business Research ( email )

Judge Business School Building
Cambridge, CB2 1AG
United Kingdom
++44 (0)1223 765325 (Phone)

HOME PAGE: http://www.cbr.cam.ac.uk/people/research-associates/gerhard-schnyder/

Anna Grosman

Loughborough University London ( email )

Glendonbrook Institute for Enterprise Development
The Broadcast Centre Queen Elizabeth Olympic Pa
London, E15 2GZ
United Kingdom

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Kun Fu

Imperial College ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Mathias Siems (Contact Author)

European University Institute (EUI) ( email )

Via Bolognese 156 (Villa Salviati)
Firenze, 50139
Italy

HOME PAGE: http://www.eui.eu/siems

University of Cambridge - Centre for Business Research ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.cbr.cam.ac.uk/people/research-associates/mathias-m-siems/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/mathias-siems

Ruth V. Aguilera

Northeastern University - Department of International Business and Strategy ( email )

Boston, MA 02115
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
67
Abstract Views
439
rank
417,038
PlumX Metrics