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Issuer Expenses and Legal Liability in Initial Public Offerings

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  • Beatty, Randolph P
  • Welch, Ivo

Abstract

Issues of initial public offerings (IPOs) face numerous decisions, of which the selection and compensation of experts--the legal counsel, the auditor, and the investment banker--are among the most important. Our article investigates the role of the entire IPO coalition (including the legal counsel). In a comprehensive sample of 823 firm-commitment offerings from 1992 to 1994, we examine how expert compensation, IPO underpricing, and IPO underpricing uncertainty are related to (1) expert quality (we provide in the text our directly comparable ranking of the top 50 experts in each category in December 1994), (2) legal caution and liability, (3) nonlegal risk signals, and (4) one another. The results are contrasted with similar results from the 1980s. Copyright 1996 by the University of Chicago.

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  • Beatty, Randolph P & Welch, Ivo, 1996. "Issuer Expenses and Legal Liability in Initial Public Offerings," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 545-602, October.
    • Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:545-602
    DOI: 10.1086/467359
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    References listed on IDEAS

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    1. Beatty, Rp, 1993. "The Economic-Determinants Of Auditor Compensation In The Initial Public Offerings Market," Journal of Accounting Research, Wiley Blackwell, vol. 31(2), pages 294-302.
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    4. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
    5. Chemmanur, Thomas J, 1993. "The Pricing of Initial Public Offerings: A Dynamic Model with Information Production," Journal of Finance, American Finance Association, vol. 48(1), pages 285-304, March.
    6. Barry, Christopher B. & Muscarella, Chris J. & Vetsuypens, Michael R., 1991. "Underwriter warrants, underwriter compensation, and the costs of going public," Journal of Financial Economics, Elsevier, vol. 29(1), pages 113-135, March.
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