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Minority Shareholder Protection Underpricing and the Stock Market Outcomes

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  • Wenming XU

    (Law School University of Bologna)

Abstract

This paper presents a model that a firm issues external equity in the presence of costs of underpricing asset in place and conducts comparative statics analysis of its decision to issue external equity at different levels of minority shareholder protection In the model minority shareholder protection influences the stock market outcomes through two channels The cost of external finance and controller s private benefits As a result its effects on different stock market outcomes are heterogeneous Using a newly assembled panel data with shareholder protection index in 25 countries for 11 years the empirical part applies system GMM estimator to a dynamic specification and confirms such divergent effects The minority shareholder protection is negatively correlated with the number of listed firms but is positively correlated with the stock market capitalization

Suggested Citation

  • Wenming XU, 2013. "Minority Shareholder Protection Underpricing and the Stock Market Outcomes," Journal of Advanced Research in Law and Economics, ASERS Publishing, vol. 4(2), pages 158-170.
    • Handle: RePEc:srs:jarle0:v:4:y:2013:i:2:p:158-170
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