An international look at the lawsuit avoidance hypothesis of IPO underpricing
AbstractWe examine the relationship between IPO underpricing and litigation risk in an international setting using a sample of 13,759 firms that went public across 40 countries between 1991 and 2011. While the majority of single-country studies do not find support for the lawsuit avoidance hypothesis, we find a significant positive relationship between litigation risk and underpricing in a cross-country framework. Contrary to all single-country legal liability studies outside the U.S. and consistent with the U.S. studies of Tiniç (1988) and Lowry and Shu (2002), our empirical results support the insurance effect of the lawsuit avoidance hypothesis in an international context. Our findings imply that the degree of litigation risk in a given country affects the level of underpricing for firms that go public in that country. We conclude that differences in legal risk factors can partially explain differences in underpricing across countries.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 19 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jcorpfin
Initial public offerings; Securities regulation; Securities litigation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
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- Dorsman, André & Gounopoulos, Dimitrios, 2013. "European Sovereign Debt Crisis and the performance of Dutch IPOs," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 308-319.
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