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Securities litigation, withdrawal risk and initial public offerings

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  • Hao, (Grace) Qing

Abstract

I examine the relations between litigation risk, withdrawal risk, and the costs of going public using a sample of withdrawn and completed initial public offerings (IPOs) filed during 1996-2005. Firms with a higher probability of offer withdrawal face higher litigation risk if they complete these offers. Firms with higher litigation risk pay slightly higher gross spreads, but do not underprice their IPOs by a greater amount. Withdrawal probability is strongly and positively associated with underwriter gross spreads, consistent with underwriters charging fees that reflect the probability of not getting paid. When the pre-market demand for an IPO is weak, a higher withdrawal probability raises underpricing on completed deals.

Suggested Citation

  • Hao, (Grace) Qing, 2011. "Securities litigation, withdrawal risk and initial public offerings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 438-456, June.
    • Handle: RePEc:eee:corfin:v:17:y:2011:i:3:p:438-456
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    3. Gullapalli, Rachita & Knyazeva, Anzhela, 2020. "Foreign issuers in emerging growth company IPOs," Journal of Multinational Financial Management, Elsevier, vol. 54(C).
    4. Ari Kang & Richard Lowery, 2014. "The Pricing of IPO Services and Issues: Theory and Estimation," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 2(2), pages 188-234.
    5. Helbing, Pia, 2019. "A review on IPO withdrawal," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 200-208.
    6. Arena, Matteo P. & Wang, Bin & Yang, Rong, 2021. "Securities litigation and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    7. Pengda Fan & Kazuo Yamada, 0. "Same bed different dream composition of IPO shares and withdrawal decisions in weak market conditions," Small Business Economics, Springer, vol. 0, pages 1-20.
    8. Natalia Matanova & Tanja Steigner & Bingsheng Yi & Qiancheng Zheng, 2019. "Going concern opinions and IPO pricing accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 195-238, July.
    9. Boucher, Carène & Kooli, Maher & Walker, Thomas, 2023. "Litigation risk, underpricing, and money-losing IPOs," Global Finance Journal, Elsevier, vol. 55(C).
    10. Klein, Peter G. & Wuebker, Robert & Zoeller, Kathrin, 2016. "Relationship banking and conflicts of interest: Evidence from German initial public offerings," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 210-221.

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