Initial Public Offerings (IPOs) initial returns: Some evidence from investors’ protection legal origin and corruption level
A private company going public for the first time by issuing their shares to the public is called Initial public offering (IPO). It is used as means to raise fund for expansion and other investment. The IPOs' initial return is the difference between the offer price of the company‟s shares and t...
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2014
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| Summary: | A private company going public for the first time by issuing their shares to the public is called Initial public offering (IPO). It is used as means to raise fund for expansion and other investment. The IPOs' initial return is the difference between the offer price of the company‟s shares and the first day closing price. There are many factors that can influence the IPOs' initial return such as market condition, underwriters' reputation, auditors' reputation and etc. Apart from this, it is evidenced by previous literature that institutional arrangements of a country also have significant influence on IPOs' initial return such as the investors' protection of country, level of corruption in a country, legal origin and many others. An investor regulation hypothesis has been suggested by La Porta (1998), and a huge literature following them, claiming that investor protection regulation influence capital markets. Hence, this study analyses the influence of investors' protection, corruption level, and legal origin on the IPOs' initial return for 28 selected OECD countries with sample size 4172 public listed companies from year 2005 to 2010. It is found that investors' protection and corruption level of a country do have significant positive relationship with the IPOs' initial return. In contrast to that legal origin of a country shows a negative relationship towards the IPOs' initial return suggesting stronger legal framework will decrease the IPOs' initial return. The finding of this study can be used as reference for minority investors and companies that are going for IPO. This study can also be used as an insight for future studies relating to IPOs' initial return and the institutional arrangements of a country. |
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