Democracy and the Pricing of Initial Public Offerings around the World

52 Pages Posted: 8 Jul 2021 Last revised: 12 Jul 2021

See all articles by Huu Nhan Duong

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Abhinav Goyal

University of Birmingham; University College Cork

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: June 16, 2021

Abstract

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

Suggested Citation

Duong, Huu Nhan and Goyal, Abhinav and Kallinterakis, Vasileios and Veeraraghavan, Madhu, Democracy and the Pricing of Initial Public Offerings around the World (June 16, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3871517

Huu Nhan Duong (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Abhinav Goyal

University of Birmingham ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland
+353 (0)21 490 2839 (Phone)

Vasileios Kallinterakis

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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