Private Firm Disclosure Transparency and International IPO Underpricing

Event Date: 13 March 2024

Speaker: Professor Abhinav Goyal, University of Birmingham

Venue: Strathclyde Business School, Cathedral Wing, CW507A

Time: 2pm

Abstract:

Using a comprehensive sample of IPOs listed in 46 countries, we show that private firm disclosure transparency increases IPO underpricing of the issuing peer firms. The effect is amplified among IPOs with higher costs of information disclosure, while it is mitigated among IPOs with lower information uncertainty, IPOs backed by reputable intermediaries and venture capital firms, and IPOs listed in countries with strong external governance mechanisms and stringent financial reporting systems. Further, we show that investor demand for IPO shares is negatively related to private firm disclosure transparency, while it is positively related to IPO underpricing. We conclude that private firm disclosure transparency diverts investor attention and capital away from the issuing peer firms, forcing them to offer a larger underpricing discount on their stocks.

Published: 12 March 2024