Democracy and the Pricing of Initial Public Offerings around the World
52 Pages Posted: 8 Jul 2021 Last revised: 12 Jul 2021
Date Written: June 16, 2021
We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.
Keywords: Democracy, IPO underpricing, Information asymmetry, Corporate governance
JEL Classification: G10, G14, G15, G30
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