Under-pricing of South and East Asian IPOs: An investigation of the relevance of governance quality in closely controlled companies

Lakshman Alles and Louis Murray

Journal of Economics and Business, 2023, vol. 123, issue C, No S0148619522000522

Abstract: In this paper, we investigate the impact of national governance quality on the under-pricing of initial public offerings (IPOs) in developing South and East Asian equity markets. A significant feature of many listed companies in these markets is the dominant control position of insider shareholders or family groups. We therefore explore the issue of concentrated control when assessing the extent of under-pricing. Concentrated control implies a significant deviation between proportionate ownership and control of company assets. We demonstrate that governance quality is related to IPO under-pricing, contrary to previous research findings on developing markets. This finding is restricted to companies not associated with concentrated control. We use two proxies to identify concentrated control. We initially use the percentage of management control rights. We use company value as an alternative proxy. Our results indicate that the ‘reduced monitoring’ explanation does apply in developing markets, when we allow for the impact of concentrated control.

Keywords: Developing market IPOs; Governance quality; South and East Asian markets; Reduced monitoring; Concentration of control (search for similar items in EconPapers)
JEL-codes: G30 G38 K20 O57 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:123:y:2023:i:c:s0148619522000522

DOI: 10.1016/j.jeconbus.2022.106096

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