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Does Disclosure Regulation Work? Evidence from International IPO Markets

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  • Charles Shi
  • Kuntara Pukthuanthong
  • Thomas Walker

Abstract

This study examines whether IPO disclosure requirements mandated by countries’ securities laws are associated with variation in IPO underpricing in international IPO markets. Our empirical analysis uses a unique sample of 6,025 IPOs from 34 countries over the period from 1995 to 2002. We show for the first time that the stringency of disclosure requirements for IPO prospectuses is negatively associated with the extent of IPO underpricing, after controlling for various country†and firm†level determinants of underpricing. Moreover, we find that the disclosure effect on IPO underpricing is moderated by the extent of a country’s capital market integration. Taken together, our findings are consistent with the view that increased disclosure regulation appears to reduce IPO underpricing and hence the cost of equity, and that institutional factors such as capital market integration play an important role in understanding the economic consequences of disclosure regulation in international IPO markets.

Suggested Citation

  • Charles Shi & Kuntara Pukthuanthong & Thomas Walker, 2013. "Does Disclosure Regulation Work? Evidence from International IPO Markets," Contemporary Accounting Research, John Wiley & Sons, vol. 30(1), pages 356-387, March.
    • Handle: RePEc:wly:coacre:v:30:y:2013:i:1:p:356-387
    DOI: 10.1111/j.1911-3846.2012.01158.x
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    Cited by:

    1. Akyol, Ali C. & Cooper, Tommy & Meoli, Michele & Vismara, Silvio, 2014. "Do regulatory changes affect the underpricing of European IPOs?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 43-58.
    2. Hoque, Hafiz & Mu, Shaolong, 2021. "Does a reduction of state control affect IPO underpricing? Evidence from the Chinese A-share market," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. 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).
    4. Chen, Yangyang & Duong, Huu Nhan & Goyal, Abhinav & Veeraraghavan, Madhu, 2023. "Social capital and the pricing of initial public offerings," Journal of Empirical Finance, Elsevier, vol. 74(C).
    5. Byun, Jinho & Kim, Kihun & Liao, Rose C. & Pan, Carrie, 2021. "The Impact of Investor Sentiment on Catering Incentives around the World," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    6. Marcato, Gianluca & Milcheva, Stanimira & Zheng, Chen, 2018. "Market integration, country institutions and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 53(C), pages 87-105.
    7. Waqas Mehmood & Rasidah Mohd-Rashid & Yasir Abdullah & Ataul Karim Patwary & Attia Aman-Ullah, 2023. "Inclusive mapping of initial public offerings: a bibliometric and literature review study," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 655-700, February.
    8. Fouad Jamaani & Manal Alidarous, 2023. "Does the appointment of the three musketeers reduce IPO underpricing? global evidence," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(4), pages 887-929, December.
    9. Ranganathan, Kavitha & Veeraraghavan, Madhu, 2023. "Pre-and-aftermarket IPO underpricing: Does use of proceeds disclosure matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    10. Jochen Bigus & Florian Dreyer, 2023. "Country‐level Accounting Enforcement and IPO Underpricing," Abacus, Accounting Foundation, University of Sydney, vol. 59(3), pages 735-775, September.
    11. Takahashi, Hidenori & Yamada, Kazuo, 2015. "IPOs, growth, and the impact of relaxing listing requirements," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 505-519.
    12. Samdani, Taufique, 2024. "Disclosure rules, controlling shareholders, and trading activity in the new issues market," Journal of Banking & Finance, Elsevier, vol. 163(C).
    13. Katti, Supriya & Lawrence, Edward R. & Raithatha, Mehul, 2023. "Risk disclosure in IPO advertisement and the quality of the firm," Journal of Financial Markets, Elsevier, vol. 64(C).
    14. Chang, Hsiu-Hua & Chen, Anlin & Kao, Lanfeng & Wu, Chin-Shun, 2014. "IPO price discovery efficiency under alternative regulatory constraints: Taiwan, Hong Kong and the U.S," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 83-96.
    15. Wolfgang Drobetz & Dimitrios Gounopoulos & Anna Merika & Andreas Merikas, 2017. "Determinants of Management Earnings Forecasts: The Case of Global Shipping IPOs," European Financial Management, European Financial Management Association, vol. 23(5), pages 975-1015, October.
    16. Chen, Yangyang & Chui, Andy C.W. & Goyal, Abhinav & Veeraraghavan, Madhu, 2022. "Societal secrecy and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 76(C).
    17. Emanuele Teti & Ilaria Montefusco, 2022. "Corporate governance and IPO underpricing: evidence from the italian market," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(3), pages 851-889, September.

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