Underpricing of IPOs and Legal Frameworks Around the World
Peter-Jan Engelen and
Marc van Essen
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Marc van Essen: RSM Erasmus University
Review of Law & Economics, 2008, vol. 4, issue 1, 419-441
This paper analyzes the relationship around the world between the underpricing of IPOs and a countrys legal framework. From the theoretical research we expect a negative relationship between a higher level of investor protection (and other measures of a countrys legal framework) and the level of underpricing. The empirical results support our expectations and show a negative relationship between a countrys legal framework and the underpricing of IPOs. In this way, this study adds to the growing law and finance literature. Firms in countries with stronger investor protection (and other measures of the countrys legal framework) have, ceteris paribus, lower costs to go public, and thus an international advantage in comparison to firms from other countries with less developed legal frameworks.
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