Democracy and the pricing of initial public offerings around the world

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Date
2021-07-23
Authors
Duong, Huu Nhan
Goyal, Abhinav
Kallinterakis, Vasileios
Veeraraghavan, Madhu
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Elsevier B.V.
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Abstract
We find a negative relation between democracy and initial public offering (IPO) underpricing for a sample of 23,050 IPOs across 45 countries. The effect of democracy on underpricing is weaker for IPOs audited by Big 4 auditing firms, backed by venture capital firms, and with better disclosure specificity of use of proceeds. Democracy exerts a larger influence on underpricing for firms with higher agency problems, in countries with weaker institutional quality or shareholder protection, and during periods of high investor sentiment or economic policy uncertainty. Overall, our results highlight the importance of democracy in reducing IPO underpricing around the world.
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Keywords
Corporate governance , Democracy , Information asymmetry , IPO underpricing
Citation
Duong, H. N., Goyal, A., Kallinterakis, V. and Veeraraghavan, M. (2021) 'Democracy and the pricing of initial public offerings around the world', Journal of Financial Economics. doi: 10.1016/j.jfineco.2021.07.010