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Under-pricing of South and East Asian IPOs: An investigation of the relevance of governance quality in closely controlled companies

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  • Alles, Lakshman
  • Murray, Louis

Abstract

In this paper, we investigate the impact of national governance quality on the under-pricing of initial public offerings (IPOs) in developing South and East Asian equity markets. A significant feature of many listed companies in these markets is the dominant control position of insider shareholders or family groups. We therefore explore the issue of concentrated control when assessing the extent of under-pricing. Concentrated control implies a significant deviation between proportionate ownership and control of company assets. We demonstrate that governance quality is related to IPO under-pricing, contrary to previous research findings on developing markets. This finding is restricted to companies not associated with concentrated control. We use two proxies to identify concentrated control. We initially use the percentage of management control rights. We use company value as an alternative proxy. Our results indicate that the ‘reduced monitoring’ explanation does apply in developing markets, when we allow for the impact of concentrated control.

Suggested Citation

  • Alles, Lakshman & Murray, Louis, 2023. "Under-pricing of South and East Asian IPOs: An investigation of the relevance of governance quality in closely controlled companies," Journal of Economics and Business, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:jebusi:v:123:y:2023:i:c:s0148619522000522
    DOI: 10.1016/j.jeconbus.2022.106096
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    More about this item

    Keywords

    Developing market IPOs; Governance quality; South and East Asian markets; Reduced monitoring; Concentration of control;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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