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Legal opportunism, litigation risk, and IPO underpricing

Author

Listed:
  • Walker, Thomas
  • Turtle, Harry J.
  • Pukthuanthong, Kuntara
  • Thiengtham, Dolruedee

Abstract

We consider the importance of legal opportunism as an explanation for observed litigation following a large sample of initial public offerings (IPOs). We characterize legal opportunism as litigation based on the potential to recover losses after negative stock price developments rather than the legal merits. We find the most important predictors of post-IPO litigation activity (both likelihood and settlement amounts) to be ex post legal stakes (i.e., monetary damages plaintiffs could claim), and the remaining wealth available in the firm. Our results suggest a disturbing role for legal activity and starkly contrast existing models of IPO underpricing that focus on ex ante risk factors.

Suggested Citation

  • Walker, Thomas & Turtle, Harry J. & Pukthuanthong, Kuntara & Thiengtham, Dolruedee, 2015. "Legal opportunism, litigation risk, and IPO underpricing," Journal of Business Research, Elsevier, vol. 68(2), pages 326-340.
  • Handle: RePEc:eee:jbrese:v:68:y:2015:i:2:p:326-340
    DOI: 10.1016/j.jbusres.2014.06.025
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    References listed on IDEAS

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    1. repec:eee:corfin:v:45:y:2017:i:c:p:342-359 is not listed on IDEAS
    2. Anderloni, Luisa & Tanda, Alessandra, 2017. "Green energy companies: Stock performance and IPO returns," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 546-552.
    3. repec:wsi:qjfxxx:v:07:y:2017:i:01:n:s2010139216500208 is not listed on IDEAS

    More about this item

    Keywords

    Initial public offerings; Securities regulation; Securities litigation; Legal opportunism;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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