Issuer Expenses and Legal Liability in Initial Public Offerings
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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