Legal opportunism, litigation risk, and IPO underpricing

Thomas Walker, Harry J. Turtle, Kuntara Pukthuanthong and Dolruedee Thiengtham

Journal of Business Research, 2015, vol. 68, issue 2, 326-340

Abstract: We consider the importance of legal opportunism as an explanation for observed litigation following a large sample of initial public offerings (IPOs). We characterize legal opportunism as litigation based on the potential to recover losses after negative stock price developments rather than the legal merits. We find the most important predictors of post-IPO litigation activity (both likelihood and settlement amounts) to be ex post legal stakes (i.e., monetary damages plaintiffs could claim), and the remaining wealth available in the firm. Our results suggest a disturbing role for legal activity and starkly contrast existing models of IPO underpricing that focus on ex ante risk factors.

Keywords: Initial public offerings; Securities regulation; Securities litigation; Legal opportunism (search for similar items in EconPapers)
JEL-codes: G18 G24 K22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:68:y:2015:i:2:p:326-340

DOI: 10.1016/j.jbusres.2014.06.025

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