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Equity issue-specific versus broad regulatory protections against expropriation risk: International evidence from SEOs

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  • Gupta, Manu
  • Prakash, Puneet
  • Rangan, Nanda K.

Abstract

We compare non-issue specific (broad) investor protections against expropriation by firm's insiders with regulations that specifically protect investors of new equity issues (issue-specific). Since in-nation regulations rarely change and are homogenous for all firms, it is difficult to compare issue- and non-issue-specific investor protection mechanisms in country-specific studies. We utilize cross-country differences in regulations to study the relative importance of issue-specific and broad regulatory protections. Using data on seasoned equity offerings (SEO), we find that SEO underpricing is related to broad protections. In particular, SEO underpricing is negatively (positively) related with the strength of ex-post (ex-ante) anti-self-dealing laws. Independent of broad protections, SEO underpricing is unaffected by issue-specific investor protections, that is, neither by disclosure requirements imposed on equity issuers nor by equity issue-specific liability rights conferred on investors. Interactions between broad protections and issue-specific protections indicate issue-specific protections reduce SEO underpricing only in countries with strong broad protections.

Suggested Citation

  • Gupta, Manu & Prakash, Puneet & Rangan, Nanda K., 2013. "Equity issue-specific versus broad regulatory protections against expropriation risk: International evidence from SEOs," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 146-166.
    • Handle: RePEc:eee:jimfin:v:35:y:2013:i:c:p:146-166
    DOI: 10.1016/j.jimonfin.2013.02.003
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    1. Gupta, Manu & Prakash, Puneet & Rangan, Nanda K., 2017. "Determinants of underwriting spreads internationally: Evidence from SEOs," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 1-22.

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    More about this item

    Keywords

    Legal risk; SEOs; Expropriation risk; Information asymmetry;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • K2 - Law and Economics - - Regulation and Business Law
    • F3 - International Economics - - International Finance

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