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Unintended regulatory consequences: Evidence from the Korean IPOs

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  • Chang, Kiyoung
  • Kim, Yong-Cheol
  • Kim, Young Sang
  • Thornton, John H.

Abstract

We examine IPOs in Korea during the period August 2000–January 2002. We conclude that the high level of underpricing in Korean IPOs is the unintended consequence of regulations designed to promote fairness. Two aspects of the regulations distort the process — an “essential price” formula that severely understates the value of the firm; and, bid exclusion rules that give investors a strong incentive to cluster their bids so as to avoid being excluded from the offering. During our sample period the rules were changed somewhat. The result was a change to gaming behavior and somewhat less underpricing.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 20 (2012)
Issue (Month): 2 ()
Pages: 292-309

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Handle: RePEc:eee:pacfin:v:20:y:2012:i:2:p:292-309

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Web page: http://www.elsevier.com/locate/pacfin

Related research

Keywords: IPO; Underpricing; Book building; Institutional investor; Regulatory changes;

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References

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  16. Kao, Jennifer L. & Wu, Donghui & Yang, Zhifeng, 2009. "Regulations, earnings management, and post-IPO performance: The Chinese evidence," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 63-76, January.
  17. Sherman, Ann E., 2005. "Global trends in IPO methods: Book building versus auctions with endogenous entry," Journal of Financial Economics, Elsevier, vol. 78(3), pages 615-649, December.
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