Book Building Hypothesis For Ipo Underpricing

Book building hypothesis for ipo underpricing

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Cross-Country IPOs: What Explains Differences in Underpricing?

44 PagesPosted: 24 May 2008Last revised: 8 Jan 2018

Date Written: June 10, 2009

Abstract

We study the impacts of country-level information asymmetry, investors' home-country bias, effectiveness of contract enforcement mechanisms, and accessibility of legal recourse on IPO underpricing in 36 countries around the globe.

We find evidence consistent with all four of our hypotheses.

Book building hypothesis for ipo underpricing

First, we find a positive and significant effect of country-level information asymmetry on IPO underpricing. Second, our empirical evidence is consistent with the agency-cost-based explanation of IPO underpricing.

Forex market timings around the world

We find that lower cost to entice the block holders, measured by domestic investors' home-country bias, reduces IPO underpricing.

Third, we find that effective contract enforcement mechanisms help to reduce IPO underpricing.

Initial Public Offering (IPO) Process

Finally, we find a positive relation between the accessibility of legal recourse and IPO underpricing.

Keywords: IPO Underpricing, Information Asymmetry, Home-Country Bias, Law Enforcement, Litigation Risk

JEL Classification: G15; G28; G32

Suggested Citation:Suggested Citation

Banerjee, Suman and Dai, Lili and Shrestha, Keshab, Cross-Country IPOs: What Explains Differences in Underpricing?

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(June 10, 2009). Journal of Corporate Finance, Vol. 17, No.

Book building hypothesis for ipo underpricing

5, 2011. Available at SSRN: https://ssrn.com/abstract=1134332 or http://dx.doi.org/10.2139/ssrn.1134332

Book building hypothesis for ipo underpricing