Country-Level Accounting Enforcement and IPO Underpricing

Abacus (Forthcoming)

55 Pages Posted: 18 May 2022 Last revised: 7 May 2023

See all articles by Jochen Bigus

Jochen Bigus

Free University Berlin, Department Accounting and Finance

Florian Dreyer

Free University of Berlin (FUB) - School of Business & Economics

Date Written: March 11, 2022

Abstract

Using a sample of up to 2,503 IPOs in 32 countries in the years 2011-2017, we predict and find that higher levels of country-level accounting enforcement are associated with lower levels of IPO underpricing. IPOs in countries with a relatively low accounting enforcement score (second quintile) exhibit a mean underpricing of 19%, whereas the mean underpricing amounts to just 9% in countries with a relatively high score (fourth quintile). The results remain qualitatively the same when we employ a multi-level model or a difference-in-difference design. In countries that substantially strengthened their accounting enforcement in the 2003-2009 period, the level of IPO underpricing decreased significantly. We show that accounting enforcement matters for the cost of going public.

Keywords: Accounting enforcement, underpricing, cross-country study, IPOs

JEL Classification: M41, G32

Suggested Citation

Bigus, Jochen and Dreyer, Florian, Country-Level Accounting Enforcement and IPO Underpricing (March 11, 2022). Abacus (Forthcoming), Available at SSRN: https://ssrn.com/abstract=4111207 or http://dx.doi.org/10.2139/ssrn.4111207

Jochen Bigus

Free University Berlin, Department Accounting and Finance ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany
++49-30-83852509 (Phone)

Florian Dreyer (Contact Author)

Free University of Berlin (FUB) - School of Business & Economics ( email )

Germany

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