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Issuer Expenses and Legal Liability in Initial Public Offerings

Listed author(s):
  • Beatty, Randolph P
  • Welch, Ivo

Issues of initial public offerings (IPOs) face numerous decisions, of which the selection and compensation of experts--the legal counsel, the auditor, and the investment banker--are among the most important. Our article investigates the role of the entire IPO coalition (including the legal counsel). In a comprehensive sample of 823 firm-commitment offerings from 1992 to 1994, we examine how expert compensation, IPO underpricing, and IPO underpricing uncertainty are related to (1) expert quality (we provide in the text our directly comparable ranking of the top 50 experts in each category in December 1994), (2) legal caution and liability, (3) nonlegal risk signals, and (4) one another. The results are contrasted with similar results from the 1980s. Copyright 1996 by the University of Chicago.

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File URL: http://dx.doi.org/10.1086/467359
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Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 39 (1996)
Issue (Month): 2 (October)
Pages: 545-602

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Handle: RePEc:ucp:jlawec:v:39:y:1996:i:2:p:545-602
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Chemmanur, Thomas J, 1993. " The Pricing of Initial Public Offerings: A Dynamic Model with Information Production," Journal of Finance, American Finance Association, vol. 48(1), pages 285-304, March.
  2. Barry, Christopher B. & Muscarella, Chris J. & Vetsuypens, Michael R., 1991. "Underwriter warrants, underwriter compensation, and the costs of going public," Journal of Financial Economics, Elsevier, vol. 29(1), pages 113-135, March.
  3. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
  4. Feltham, Gerald A. & Hughes, John S. & Simunic, Dan A., 1991. "Empirical assessment of the impact of auditor quality on the valuation of new issues," Journal of Accounting and Economics, Elsevier, vol. 14(4), pages 375-399, December.
  5. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
  6. Allen, Franklin & Faulhaber, Gerald R., 1989. "Signalling by underpricing in the IPO market," Journal of Financial Economics, Elsevier, vol. 23(2), pages 303-323, August.
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