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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.

Suggested Citation

  • Chang, Kiyoung & Kim, Yong-Cheol & Kim, Young Sang & Thornton, John H., 2012. "Unintended regulatory consequences: Evidence from the Korean IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 292-309.
    • Handle: RePEc:eee:pacfin:v:20:y:2012:i:2:p:292-309
    DOI: 10.1016/j.pacfin.2011.10.002
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    References listed on IDEAS

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    Cited by:

    1. Stavros Thomadakis & Dimitrios Gounopoulos & Christos Nounis & Andreas Merikas, 2016. "Collateral Regulation and IPO†Specific Liberalisation: the Case of Price Limits in the Athens Stock Exchange," European Financial Management, European Financial Management Association, vol. 22(2), pages 276-312, March.
    2. Giannopoulos, George & Degiannakis, Stavros & Holt, Andrew & Pongpoonsuksri, Teerapon, 2018. "The Impact of the 2007 Global Financial Crisis on IPO Performance in Asian-Pacific Emerging Markets," MPRA Paper 96269, University Library of Munich, Germany.
    3. Millicent Chang & Andrew B. Jackson & Marvin Wee, 2018. "A review of research on regulation changes in the Asia‐Pacific region," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 635-667, September.

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    More about this item

    Keywords

    IPO; Underpricing; Book building; Institutional investor; Regulatory changes;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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