Going concern opinions and IPO pricing accuracy

Natalia Matanova (), Tanja Steigner (), Bingsheng Yi () and Qiancheng Zheng ()
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Natalia Matanova: Pennsylvania State University
Tanja Steigner: Emporia State University
Bingsheng Yi: California State University
Qiancheng Zheng: Emporia State University

Review of Quantitative Finance and Accounting, 2019, vol. 53, issue 1, No 7, 195-238

Abstract: Abstract In a marked shift, it has become relatively more common for ordinary initial public offerings (IPOs) to contain going concern opinions (GCOs) in their offering documents. Examining the implications of such GCOs for IPO investors in a sample of ordinary IPOs from 2001 to 2012, we find that GCOs increase price accuracy by reducing price revisions and underpricing. Further, we show that GCO IPOs with reputable underwriters experience higher price revisions. Our underpricing analysis supports the lawsuit avoidance theory. We also provide novel evidence that the market can distinguish between temporarily constrained GCO IPOs and those with persistent problems that receive a second GCO post-IPO. Overall, this paper contributes to the existing literature by shedding light on whether GCOs contained in IPO prospectuses provide material information and result in better pricing mechanisms.

Keywords: Going concern opinions; Ordinary IPOs; Underpricing; Price revisions; Pricing accuracy; Lawsuit avoidance hypothesis (search for similar items in EconPapers)
JEL-codes: G12 G14 G28 G33 K22 M42 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-018-0747-0

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