2006.12.12
Seminar Title: Disclosure Regulation and IPO Underpricing: An International Analysis
Time: 14:00-15:30, Dec.12th, 2006
Language: English
Speaker: Charles Shi, Assistant Professor of Accounting; The Paul Merage School of Business, University of California, Irvine.

Abstract:  The economic consequences of disclosure regulation have been the subject of much debate. This study contributes to the debate by examining the informational effect of disclosure regulation and the extent to which the disclosure effect is altered by country-specific institutional factors in the context of international IPO markets. Our empirical analysis uses a unique sample of 6,025 IPOs from 34 countries over the period from 1995 to 2002. We show for the first time that the stringency of disclosure requirements for IPO prospectuses is negatively associated with the extent of IPO underpricing, after controlling for various country- and firm-level determinants of underpricing. Moreover, we find that the mandatory disclosure effect is significantly smaller in countries with strong auditing regimes, suggesting that auditor quality and disclosure regulation are substitutes for resolving information asymmetry in the IPO market. On the other hand, we find no evidence that the extent of a country's capital market integration with the rest of the world markets has any incrementally significant effect on the disclosure-underpricing relation after controlling for auditor quality. Taken together, our findings are consistent with the view that increased disclosure regulation reduces information asymmetries in international IPO markets, consequently lowering the cost of new equity, and that institutional factors play an mportant role in understanding the informational effect of mandatory disclosure.
 
Key Words: Disclosure Regulation, Mandatory Disclosure, International IPO Underpricing, Cost of Equity, Auditor Quality