Local corporate misconduct and local initial public offerings

Emre Kuvvet and Darshana D. Palkar

The Financial Review, 2020, vol. 55, issue 1, 169-192

Abstract: This paper investigates the cost of going public through initial public offerings (IPOs) for firms located in regions with significant fraud density. We find that companies in regions with a high proportion of nearby firms that have committed corporate misconduct have more pronounced underpricing, experience higher post‐IPO stock return volatility, and are more likely to withdraw their offerings. Overall, our results show that local corporate misconduct is associated with the pricing of IPOs, and the breach of trust is related to costly IPOs for newcomers.

Date: 2020
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