Democracy and the pricing of initial public offerings around the world

Huu Nhan Duong; Abhinav Goyal; Vasileios Kallinterakis; Madhu Veeraraghavan

doi:10.1016/j.jfineco.2021.07.010

Democracy and the pricing of initial public offerings around the world

Huu Nhan Duong^*, Abhinav Goyal, Vasileios Kallinterakis, Madhu Veeraraghavan

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

16 Downloads (Pure)

Abstract

We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.

Original language	English
Pages (from-to)	322-341
Number of pages	20
Journal	Journal of Financial Economics
Volume	145
Issue number	1
Early online date	23 Jul 2021
DOIs	https://doi.org/10.1016/j.jfineco.2021.07.010
Publication status	Published - Jul 2022

Bibliographical note

Funding Information:
We are grateful to an anonymous referee for the insightful comments and suggestions, which have significantly improved the paper. Veeraraghavan thanks the T A Pai Chair Professorship for funding support. We thank Savitha Heggede and Meghana Mohan for excellent research assistance. All errors are our own.

Publisher Copyright:
© 2021

Keywords

Corporate governance
Democracy
Information asymmetry
IPO underpricing

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics
Strategy and Management

Access to Document

10.1016/j.jfineco.2021.07.010Licence: None: All rights reserved

DuongH2021DemocracyAccepted author manuscript, 690 KBLicence: Creative Commons: Attribution-NonCommercial-NoDerivs (CC BY-NC-ND)

Cite this

@article{f0c9d3f2e9d04b0da8df621dc04e8d65,

title = "Democracy and the pricing of initial public offerings around the world",

abstract = "We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.",

keywords = "Corporate governance, Democracy, Information asymmetry, IPO underpricing",

author = "Duong, {Huu Nhan} and Abhinav Goyal and Vasileios Kallinterakis and Madhu Veeraraghavan",

note = "Funding Information: We are grateful to an anonymous referee for the insightful comments and suggestions, which have significantly improved the paper. Veeraraghavan thanks the T A Pai Chair Professorship for funding support. We thank Savitha Heggede and Meghana Mohan for excellent research assistance. All errors are our own. Publisher Copyright: {\textcopyright} 2021",

year = "2022",

month = jul,

doi = "10.1016/j.jfineco.2021.07.010",

language = "English",

volume = "145",

pages = "322--341",

journal = "Journal of Financial Economics",

issn = "0304-405X",

publisher = "Elsevier",

number = "1",

}

TY - JOUR

T1 - Democracy and the pricing of initial public offerings around the world

AU - Duong, Huu Nhan

AU - Goyal, Abhinav

AU - Kallinterakis, Vasileios

AU - Veeraraghavan, Madhu

N1 - Funding Information: We are grateful to an anonymous referee for the insightful comments and suggestions, which have significantly improved the paper. Veeraraghavan thanks the T A Pai Chair Professorship for funding support. We thank Savitha Heggede and Meghana Mohan for excellent research assistance. All errors are our own. Publisher Copyright: © 2021

PY - 2022/7

Y1 - 2022/7

N2 - We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.

AB - We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.

KW - Corporate governance

KW - Democracy

KW - Information asymmetry

KW - IPO underpricing

UR - http://www.scopus.com/inward/record.url?scp=85112073861&partnerID=8YFLogxK

U2 - 10.1016/j.jfineco.2021.07.010

DO - 10.1016/j.jfineco.2021.07.010

M3 - Article

AN - SCOPUS:85112073861

SN - 0304-405X

VL - 145

SP - 322

EP - 341

JO - Journal of Financial Economics

JF - Journal of Financial Economics

IS - 1

ER -

Democracy and the pricing of initial public offerings around the world

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Fingerprint

Cite this