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The Relation between IPO Underpricing and Litigation Risk Revisited: Changes between 1990 and 2002

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  • Yun (Ellen) Zhu
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    Abstract

    "This paper reexamines the litigation risk hypothesis of initial public offering (IPO) underpricing in different legal and economic environments. When litigation risk is reduced in the three-year period after the enactment of the Private Securities Litigation Reform Act of 1995, firms' litigation risk plays a less significant role in IPO underpricing strategy. Furthermore, underpricing deters more traditional IPO lawsuits compared to that effect in the pre-1995 period. In the period after that, however, there is another structural change in which firms again use underpricing as insurance against IPO lawsuits. This underpricing may actually have led to greater litigation relating to IPO allocation irregularities." Copyright (c) 2009 Financial Management Association International.

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    Bibliographic Info

    Article provided by Financial Management Association International in its journal Financial Management.

    Volume (Year): 38 (2009)
    Issue (Month): 2 (06)
    Pages: 323-355

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    Handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:323-355

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    Cited by:
    1. Hao, (Grace) Qing, 2011. "Securities litigation, withdrawal risk and initial public offerings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 438-456, June.

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