Equity issue-specific versus broad regulatory protections against expropriation risk: International evidence from SEOs

Manu Gupta, Puneet Prakash and Nanda K. Rangan

Journal of International Money and Finance, 2013, vol. 35, issue C, 146-166

Abstract: We compare non-issue specific (broad) investor protections against expropriation by firm's insiders with regulations that specifically protect investors of new equity issues (issue-specific). Since in-nation regulations rarely change and are homogenous for all firms, it is difficult to compare issue- and non-issue-specific investor protection mechanisms in country-specific studies. We utilize cross-country differences in regulations to study the relative importance of issue-specific and broad regulatory protections. Using data on seasoned equity offerings (SEO), we find that SEO underpricing is related to broad protections. In particular, SEO underpricing is negatively (positively) related with the strength of ex-post (ex-ante) anti-self-dealing laws. Independent of broad protections, SEO underpricing is unaffected by issue-specific investor protections, that is, neither by disclosure requirements imposed on equity issuers nor by equity issue-specific liability rights conferred on investors. Interactions between broad protections and issue-specific protections indicate issue-specific protections reduce SEO underpricing only in countries with strong broad protections.

Keywords: Legal risk; SEOs; Expropriation risk; Information asymmetry (search for similar items in EconPapers)
JEL-codes: F3 G3 K2 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:35:y:2013:i:c:p:146-166

DOI: 10.1016/j.jimonfin.2013.02.003

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