TY - JOUR
T1 - Impact of investors’ protection, transparency level and legal origin on initial public offering (IPO) initial returns
AU - Sundarasen, Sheela
AU - Goel, Sanjay
AU - Zulaini, Fairuz Ahmad
PY - 2017/1/1
Y1 - 2017/1/1
N2 - Purpose: Managers may underprice initial public offerings (IPOs), leading to higher initial returns (IRs). The purpose of this paper is multi-fold: to compensate investors for risk, to reduce litigation risk, as well as to maintain control over the firm. The authors examine country-level contingencies (degree of investor protection, legal origin and degree of transparency) in OECD countries to explain IPO IRs. Design/methodology/approach: Cross-sectional data comprising of 4,164 IPOs from 28 OECD countries are used for the period of 2005-2010. Ordinary least square using multiple linear regressions is used to test the hypotheses. Findings: Investors’ protection is associated with higher IRs. This relationship is stronger in the non-common law countries. Degree of transparency negatively moderates the relationship in common law countries. Overall, the results show evidence of risk compensation, litigation risk reduction, and managerial control motives in underpricing. Originality/value: IPO IRs in OECD countries is examined, within the boundaries of institutional characteristics, i.e., investors’ protection, legal origin and transparency level.
AB - Purpose: Managers may underprice initial public offerings (IPOs), leading to higher initial returns (IRs). The purpose of this paper is multi-fold: to compensate investors for risk, to reduce litigation risk, as well as to maintain control over the firm. The authors examine country-level contingencies (degree of investor protection, legal origin and degree of transparency) in OECD countries to explain IPO IRs. Design/methodology/approach: Cross-sectional data comprising of 4,164 IPOs from 28 OECD countries are used for the period of 2005-2010. Ordinary least square using multiple linear regressions is used to test the hypotheses. Findings: Investors’ protection is associated with higher IRs. This relationship is stronger in the non-common law countries. Degree of transparency negatively moderates the relationship in common law countries. Overall, the results show evidence of risk compensation, litigation risk reduction, and managerial control motives in underpricing. Originality/value: IPO IRs in OECD countries is examined, within the boundaries of institutional characteristics, i.e., investors’ protection, legal origin and transparency level.
KW - Initial public offering (IPO)
KW - Initial returns
KW - Investors’ protection
KW - Legal origin
KW - Transparency level
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U2 - 10.1108/MF-08-2016-0230
DO - 10.1108/MF-08-2016-0230
M3 - Article
AN - SCOPUS:85021698497
SN - 0307-4358
VL - 43
SP - 738
EP - 760
JO - Managerial Finance
JF - Managerial Finance
IS - 7
ER -