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The impact of institutional quality on initial public offerings

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  • Autore, Don M.
  • Boulton, Thomas J.
  • Smart, Scott B.
  • Zutter, Chad J.

Abstract

Country-level institutional quality is positively correlated with the underpricing of initial public offerings (IPOs). The association is strong for IPOs issued in developed markets, but absent for emerging-market IPOs. We hypothesize that extra-legal institutions, including financial reporting practices, law enforcement, public trust, and outside monitoring affect the availability and value of private benefits of control accessible to entrepreneurs, which in turn shapes the relation between institutional quality and IPO underpricing. Evidence on the relation between underpricing and post-IPO ownership dispersion is consistent with prior studies that suggest that underpricing is motivated, at least in part, by entrepreneurs’ desire for post-IPO control.

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  • Autore, Don M. & Boulton, Thomas J. & Smart, Scott B. & Zutter, Chad J., 2014. "The impact of institutional quality on initial public offerings," Journal of Economics and Business, Elsevier, vol. 73(C), pages 65-96.
    • Handle: RePEc:eee:jebusi:v:73:y:2014:i:c:p:65-96
    DOI: 10.1016/j.jeconbus.2014.01.002
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    2. Jamaani, Fouad & Ahmed, Abdullahi D., 2021. "Modifier effects of country-level transparency on global underpricing difference: New hierarchical evidence," International Review of Financial Analysis, Elsevier, vol. 74(C).
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    More about this item

    Keywords

    Governance; Initial public offerings; International finance; Investor protection;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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