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Governance reform and IPO underpricing

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  • Ekkayokkaya, Manapol
  • Pengniti, Tulaya

Abstract

Underpricing of IPOs in Thailand significantly drops following the country's major governance reform, indicating less price-protection by investors. The lower price-protection is associated with fewer instances of absolute control retention by pre-issue insiders during the post-reform period, not reduction in the expropriation risk. While corporate disclosure does not reveal issuers' true risk type before the reform, it does so after the reform. Yet, insiders make significantly less disclosure when retaining absolute control regardless of the reform. We conclude that governance regulation in an economy with fundamentally weak legal institutions works, but its efficacy is limited when insiders retain absolute control.

Suggested Citation

  • Ekkayokkaya, Manapol & Pengniti, Tulaya, 2012. "Governance reform and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 238-253.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:2:p:238-253 DOI: 10.1016/j.jcorpfin.2011.12.007
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    Cited by:

    1. 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.
    2. Akyol, Ali C. & Cooper, Tommy & Meoli, Michele & Vismara, Silvio, 2014. "Do regulatory changes affect the underpricing of European IPOs?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 43-58.
    3. Alanazi, Ahmed S. & Al-Zoubi, Haitham A., 2015. "Extreme IPO underpricing and the legal environment in wealthy emerging economies," Journal of Multinational Financial Management, Elsevier, pages 83-103.
    4. Fairchild, Richard & Guney, Yilmaz & Thanatawee, Yordying, 2014. "Corporate dividend policy in Thailand: Theory and evidence," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 129-151.
    5. Benson, David F. & Brau, James C. & Cicon, James & Ferris, Stephen P., 2015. "Strategically camouflaged corporate governance in IPOs: Entrepreneurial masking and impression management," Journal of Business Venturing, Elsevier, vol. 30(6), pages 839-864.
    6. repec:eee:corfin:v:44:y:2017:i:c:p:73-98 is not listed on IDEAS
    7. Cattaneo, Mattia & Meoli, Michele & Vismara, Silvio, 2015. "Financial regulation and IPOs: Evidence from the history of the Italian stock market," Journal of Corporate Finance, Elsevier, pages 116-131.

    More about this item

    Keywords

    Regulatory reform; Investor protection; Emerging market; Expropriation risk; Disclosure; IPO underpricing;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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