Regulatory Framework and IPO Underpricing Finance Essay

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Literature review has been divided in five parts. Part 1 reviews different studies that examined the short run price performance of IPO stocks or related to under pricing of IPOs and Part 2 reviews the literature related to regulatory framework of IPO. In Part 3, the literature related to the effect of signaling and financial variables on IPO Underpricing have been reviewed. Part 4 reviews the studies related to affiliation with group on the underpricing of IPOs. The last part converses the studies performed to examine the impact of corporate disclosure practices on the company’s functioning and policy formulation. After such categorized study of such components, it would be unproblematic to comprehend the essentials of the major components of the study, by which a significant relationship can be established. Ibbotson (1975) measured the initial performance of IPO and examined the after-market performance for the period from 1960 to 1969. The average initial performance was found to be positive. He concluded that underpricing is evident from the fact that there are positive initial returns that have accrued to the investors and also from the efficient after-market performance. Ritter (1984) showed average underpricing of 26.5% over the period (1977-82), Buser & Chan (1987) evaluated the two years’ performance of over 1078 NASDAQ / National Market System, eligible IPOs in 1981-85 and found a positive average initial return of 6.2%. Aggarwal and Rivoli (1990) related underperformance to a temporary overvaluation of the IPO firm at the offering date. The value of the new shares got downwardly adjusted when the over optimism disappeared. Ritter (1991) analyzed 1526 IPOs in the US offered during 1967-87. He documented that newly listed companies substantially underperformed a set of seasoned firms matched by size and industry in stock returns for the first three years subsequent to listing. He was the first to document the long-run underperformance anomaly in IPO literature. Following Ritter (1991), Loughran (1993) examined the returns from 3,556 IPOs during 1967-1987 and found an average six year total return of 17.29% compared with 76.23% for the NASDAQ index during an identical period. The results were however worse than those of Ritter for his three year tests. Loughran and Ritter (1995) examined the stock returns of 4,753 initial public offerings and 3,702 seasoned equity offerings offered during 1970 to 1990. They reported that the 3 and 5 year buy-and-hold returns for IPOs in the post-issue period were 26.9% and 50.7% less than size-matched non-issuing firm respectively. Consistent with Loughran and Ritter (1995), Spiess and Affleck-Graves (1995) also reported that seasoned issuers underperform their industry peers matched by size. The underperformance phenomenon is not limited to the United States only. In the UK, Levis (1993) examined the long-run performance of a sample of 712 UK IPOs issued during 1980-88. He reported that underperformance varied between 8.3% and 23.0%, depending on the benchmark chosen. Aggarwal, Leal, and Hernandez (1993) reported three-year market-adjusted returns of -47.0%, -19.6% and -23.7% for Brazil, Mexico, and Chile, respectively. Keloharju (1993) found that the average Finnish IPO lost 22.4% from the first market trading to subsequent three years, in comparison to 1.6% average decline for the market index. Underperformance of IPOs was also confirmed in Australia. Lee, Taylor and Walter (1996) analyzed both initial under-pricing and post-listing returns for Australian new issues. The results showed that Australian new issues significantly under-performed market movements in the three-year period subsequent to listing. Kunz and Aggarwal (1994) examined 42 Swiss IPOs between 1983 and 1989 and reported underperformance to the extent of 6.1%. The exception to the globally observed underperformance was reported by Kim, Krinsky and Lee (1995), who investigated Korean initial public offerings (IPOs). They analysed 169 firms listed on the Korean Stock Exchange during 1985-1989. Unlike previous international evidence, their results revealed that the Korean IPOs outperform seasoned firms with similar characteristics. For Malaysia, Paudyal et al. (1998) found that the performance of IPOs is not different from that of the market portfolio. Chan, et. al. (2003) examined the long run performance of 570 A-share and 39 B-share IPOs issued in China. After three years from listing, A-share IPOs were found to underperform their non-IPO benchmarks while B-share IPOs outperformed their non-IPO benchmarks. They found that the post-issue stock returns for A-share IPOs had a positive relation with changes in operating return on assets, changes in operating cash flows on total assets and changes in growth rate of sales. This finding implies that in the long run, stock price performance exhibits a reflection of a firm’s operating performance. The empirical studies on Indian IPO markets primarily focused on the initial returns. Unlike the underpricing issue, the long-run performance of IPOs in India is less explored and has so far mixed results have been depicted. The studies undertaken in Indian context on under pricing have been done by Shah (1995), Majumdar (1999). Shah (1995) empirically studied India’s vibrant IPO market, via a dataset of the 2056 IPOs. The study analyzed the overall underpricing, the delay between issue date and listing date, the time- series of monthly volume of IPO issues and average underpricing in a given month, the cross-section of underpricing across companies, the post-listing trading frequency, the long-run returns to new listings, and price discovery by the market shortly after first listing.Madhusoodan et al. (1997) documented a positive return of 16.33% for 1922 IPOs after three years from issue. Habib and Ljungqvist (2001) generalize the notion that issuers have an incentive to reduce underpricing, and model their optimal behavior. They argue that if issuers can take costly actions that reduce underpricing, they will do so up to the point where the marginal cost of reducing underpricing further just equals the marginal benefit. This marginal benefit is not measured by underpricing itself, but by the reduction in the issuer’s wealth loss that underpricing implies. Loughran and Ritter (2004), also provided some facts that banks have strategically underprice the IPOs, in an effort to enrich themselves or their investment clients. Another fact in the study is that the top banks have lowered their criteria for selecting IPOs to underwrite, resulting in a higher average risk profile for their IPOs which certainly require making them heavily underpriced. Ritter et al (2006) found that the underpricing of IPOs in Denmark is only 5 percent for a period of 14 years beginning from 1984, while in China for a period of 10 years from 1990, the underpricing was found to be more than 250 percent. Engelen (2007) presented an empirical study on a country level, the impact of investor protection on the growth of capital market & the long run expansion. They found that Countries where investor protection is strong, gives an advantage to the companies in comparison to the countries where investor protection is not so strong in terms of cost to the public. Tian & Megginson (2007) suggested that investment risks in China’s primary markets are greater than in other new issues markets and these risks partly explains the extreme levels of Chinese IPO underpricing. However, the principal cause of this underpricing is government regulation. The supply restricting measures traditionally adopted by the Chinese regulatory authorities turn IPO shares into hot commodities, which are fiercely bid for, and this leads to corruption and a reallocation of wealth from firms and investors to politically connected individuals and groups. Coakley, Hadass & Wood (2009) analyzed the nature and factors of short run underpricing for such IPOs which have been issued during 1985-2003 on London Stock Exchange, counted to be 591. They also state the significant difference between the 1998-2000 bubble year and rest of the taken samples. They also state that the venture capitalist and reputable underwriters played a significant role for the rest of the samples except the bubble years. The combination of venture capitalist and prestigious underwriters was highly associated with the highest underpricing witnessed during 1998-2000. Deb & Marisetty (2010) discussed that in the year 2007, Indian capital market regulator-SEBI, introduced a unique certification mechanism for IPOs whereby all IPOs have to undergo mandatory quality grading by independent rating agencies. In this paper they argue that such objective, independent and exogenous certifying mechanism provides a better opportunity to test the well established certification hypothesis, especially in the context of emerging markets with institutional voids. They mentioned that grading decreasesA IPO underpricingA and positively influence demand of retail investors using a sample of 163 Indian companies. Grading reduces secondary market risk and improves liquidity.

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2.2 REGULATORY FRAMEWORK AND IPO UNDERPRICING

Loughran et al. (1994) analyzed aftermarket performance of international IPOs. They cited contrasts in regulatory environments, contractual arrangements, and firm characteristics as causes of varying degrees of IPO underperformance across countries. They anticipated underperformance in Asian countries to diminish during the 1990s as compared to the 1980s due to a mitigation of regulatory constraints. Pandey (2004) analysed 84 fixed priced and book build Indian IPOs from 1999 to 2002 for a period of 500 trading days. It was found that fixed price IT IPOs performed the worst and all types of IPOs, on an average underperformed till about two years subsequent to listing. However, Singh and Mittal (2005) analysed the long-run performance of 500 Indian IPOs offered during 1992 to 1996 up to three years. The Indian IPOs earned excess returns up to six months from the date of listing and thereafter the returns declined sharply, though remained positive at the end of first year. However, the investors who held their investments for a period of 2-3 year experienced negative returns. Engelen and Essen (2007), they have studied the relationship around the world between the under pricing of IPOs and a Country’s legal framework. Measures of the country’s legal is framework, investor protection and under pricing of IPO. They found support our expectations and show a negative relationship between a country’s legal framework and the under pricing of IPOs. Boulton, Smart and Zutter, (2009) established that a link exists between a country’s legal system and the size, liquidity, and value of its capital markets. They studied how differences in country-level governance affect the underpricing of initial public offerings (IPOs). Examining 4462 IPOs across 29 countries from 2000 to 2004 and concluded that underpricing is higher in countries with corporate governance that strengthens the position of investors relative to insiders. They concluded that when countries give outsiders more influence, IPO issuers underprice more to generate excess demand for the offer, which in turn leads to greater ownership dispersion and reduces outsiders’ incentives to monitor the behavior of corporate insiders. In other words, underpricing is a cost that insiders pay to maintain control in countries with legal systems designed to empower outsiders. Jingyun, Fengming and Zhishu (2010), they have studied to examine the evolution of China’s securities market regulation from 1980 to 2007 and the dual role of the government in this process. They found that paper unique evidence of how securities regulation evolves in response to government direction and supervision if the government is both the owner and the regulator of the securities market. Gerry, Natalie and Linus (2011), they have studied on jointly assess the impact of regulatory reform for corporate fundraising in Australia (CLERP ActA 1999) and the relaxation of ASX admission rules in 1999, on the accuracy of management earnings forecasts in initial public offer (IPO) prospectuses. They found that the new regulatory environment has had a positive impact on management forecasting behavior. In the post-CLERP ActA period, the accuracy of prospectus forecasts and their revisions significantly improved and, as expected, the results are primarily driven by CTE firms. 2.3 SIGNALING AND FINANCIAL VARIABLES AND UNDERPRICING Baron and Holmstrom (1980) analyzed the asymmetric information between underwriters and issuers. They found that higher ex ante uncertainty about the value of the firm leads to more informational asymmetry between underwriters and issuers, which in turn lead to more underpricing. Ritter (1984) proved a positive relationship between the underpricing of issue and the level of uncertainty about the firm value. Older firms which have a longer history has more information available with public and have a longer track record of published financial data. Therefore, the older firms are more likely to be screened by financial press and the intermediaries. Thus these older firms create less uncertainty about the value of firm and the level of underpricing becomes less as compared to the new firms. Beatty and Ritter (1986) concluded that the riskiness depends upon the firm size. They concluded that large firms are less risky as compared to the smaller firms. Therefore the size of issue is considered to be inversely proportional with the underpricing of issue. Hence the large issue size is less underpriced compared to the small issue size. Rock (1986) explained the winner’s curse where information asymmetry arises due to the two types of investors; informed and uninformed investors. He explained that the uninformed investors get a small allocation of the issues of good firm and they go in losses. Therefore underpricing is necessary due to the concern of uninformed investors. Miller and Reilly (1987) observed that there is a positive relation between underpricing and volume during first five days of trading. If the uncertainty is high in case of underpriced issues then trading volume is generally high assuming volume as a proxy for the extent to which the investors disagree about the security value. Reside et al (1994) found a negative correlation between the age of firm and the underpricing of issue. They attributed this to availability of more information of the older firm as compared to the new firms. So underpricing is relatively less in case of older firms. Ajay Shah (1995) the delay in issue offer and listing of the issue blocks the money of investors for a certain time period and it thus leads to the illiquidity of the investors. On the other side the investors asks for a higher premium on the listing day. Due to this listing delay the investors have different opinions on the basis of available information that comes during the delay period. This affects the underpricing of IPO to a great extent. Further listing delay is positively correlated with the underpricing because the issuing firm earns an interest on the application money and the investors who become illiquid must be compensated by the underpricing of issue. Sherman and Chowdhry (1996) showed that the IPO underpricing is more in U.S firms where the offer price is fixed some time earlier than listing of the stocks on the exchange than those where the stock listing delay is one day only. This is due to future uncertainty resulting from the delay in listing Lee at. el. (1996a and 1996b) found an insignificant negative relationship between initial return and listing time lag in Singapore but found a significant relationship between return and time lag in Australia. Krigman et al (1999), by examining that whether the extent to which flipping done by short term investors on the first trading day is related to the long term IPO performance, reported that the turnover is directly proportional to the under pricing of an IPO. Uddin (2001) found a significant relationship between IPO initial returns and the listing delay after the approval of offer price by the securities authority in Malaysia. The listing time lag increases the uncertainty of the issue price. Reese (2003) He states that the trading volume on the initial days is in direct relation with the level of interest in the premarket which correspondingly results in a positive relationship between the high trading volume and underpricing on the basis of assumption that all the three factors generates the additional information through decreased transaction costs and increased analyst following. Claessens and Laeven (2003) Firms which operate in legal environment with poor protection of intellectual property rights under invest in intangible assets, leading to lower firm growth and lower firm value. Lower levels of legal protection will create more uncertainty with respect to post IPO strategies and managerial decisions that may negatively affect firm value. This higher ex ante uncertainty concerning firm valuation hence leads to more underpriced IPOs. Roosenboom and Schramade (2006) The future uncertainty is high in case of high tech firms in comparison with non tech firms. The IPOs of technology firms are more underpriced as compared to the IPOs of firs in other sectors. Ellul and Pagano (2006) developed and tested a model that shows that underpricing is also affected by uncertainty about the after-market liquidity. They find that the less liquid the after-market is expected to be the larger the IPO underpricing. Shelly and Singh (2008) There is a positive correlation between the age of firm and the oversubscription of the issue due to higher confidence in the prospects of the firms which results in the higher underpricing of issue. Falconieri et. al. (2009) He labels this type of uncertainty as “ex-post uncertainty” and develops proxies for it. They document a strong link between ex-post uncertainty and IPO underpricing consistent with Chen and Wilhelm.s argument. Sahoo, et. al. (2010) studied the relationship between post-issue promoter groups’ retention and Initial Public Offering (IPO) under price. They also investigate the impact of signaling and financial variables, i.e. offer size, times subscribed, age of the firm, book value, leverage, market volatility and ex-ante uncertainty along with post-issue promoter groups holding on IPO under price. On using a sample of 92 IPOs, they found that IPOs are underpriced during 2002 to 2006. Their results indicated that offer size, times subscribed and post-issue promoter group holding are statistically significant in explaining under price.

GROUP AFFILIATION AND IPO UNDERPRICING

Another issue that is gaining importance among the researchers is the role of group affiliation on the firm’s performance. Khanna and Palepu [2000] compared the accounting and market-based performance of group-affiliated Indian companies with similar stand-alone companies and concluded that group affiliation is a positive signal but this holds true only for diversified and large business groups. But most of the studies in this area has been confined to the post IPO performance of the firms. However, Dewenter, Novaes and Pettway (2001), probably for the first time tried to deal with the effects of group affiliation and the initial performance for the IPOs of Japanese firms affiliated with business groups. They conclude that group affiliated companies pay higher costs in the form of higher IPO underpricing due to the additional costs incurred by investors to analyze the complexity associated with group-affiliated companies.

CORPORATE DISCLOSURE PRACTICES & UNDERPRICING OF IPO

Jenson & Michael (1986) described that at the company level, good corporate governance assures the optimal use of firm’s capital. It also mentioned that the top management with free cash flows invested in over diversification, which often resulted into organizational inefficiencies. This problem is more likely to happen when there are weak corporate governance mechanisms. Byrd and Hickman (1992) found that the abnormal bidder returns on the date of takeover bid announcements are significantly higher when the board’s decision is likely to have been made by independent directors instead of related directors. This also suggests that the market believes that independent/outside directors dominated boards are more likely to act in the best interest of the shareholders. Pandya (1992) examined that SEBI’s efforts in the direction of investors’ protection as a regulatory and development body of capital market are varied and unlimited. The measures taken by SEBI mainly taps measures for apportion efficiency in the primary market where IPOs exist, with fair degree of transparency, reforms in the secondary market for making it transparent and visible which would provide the primary market a strong base for its effective trading, and mainly the focus is onto the protection of the investing public. Cremens & Nair (2003) have verified that the effective corporate governance relies on both internal and external mechanisms and that they are strong complements. Corporate governance of a firm can’t be judged by its external edifice, it also have many of the internal facts, policies and structures which make a firm stand to the corporate governance ratings. Committee on Corporate Governance, SEBI (2003) stated the mandatory suggestions focus on strengthening the responsibilities of audit committees, improving the quality of financial disclosures, including those related to related party dealings and proceeds from initial public offerings; requiring corporate executive boards to assess and disclose business risks in the annual reports of companies; introducing responsibilities on boards to adopt formal codes of conduct; the position of nominee directors; and stock holder approval and improved disclosures relating to compensation paid to non-executive directors. [1] The Committee believes that these recommendations represent certain standards of ‘good’ governance into specific requirements, since certain corporate responsibilities are too important to be left to lose concepts of fiduciary responsibility. Yeh & Shu (2004) scrutinized that the negotiation of the offering price is strictly dictated by the soundness of corporate governance structure of the IPO firm. Their empirical results from 218 Taiwanese IPO firms for a decade are generally consistent with the positive incentive effect and negative entrenchment effect. They judge that the outcome is the result of repetitive negotiations that involve different interest parties, namely the controlling shareholder of issuing firm, underwriter, and outside investors. Corporate governance variables serve the nexus that integrates the underlying hypotheses in illustration of the willingness and motivation of the controlling shareholder, the acceptance and allowance of the underwriter, and the informativeness of the provided accounting data. Ljungqvist (2005) found that institutional structure affects the underpricing of IPOs in different nations. A new dimension was brought forward by this study that underpricing is less in case of companies in developed markets as compared to the companies in less developed markets. Hazem, Charles & David (2006) describes that after controlling other influences, an increase in overall capital market governance in a country is linked to a decrease in the cost of equity, an increase in market liquidity, and an increase in pricing efficiency. Specifically, improved security laws are associated with decreased cost of capital, higher trading volume, greater market depth, lower price synchronicity, and reduced IPO underpricing. These results hold for the overall CMG index, and are directionally consistent for each of the three individual CMG components),are cost of capital (both realized and implied), market liquidity (i.e., trading volume and market depth) and pricing efficiency (i.e., stock price synchronicity and IPO underpricing). Bedard & Coulombe (2007) contributed to the debate surrounding the effectiveness of governance practices by examining IPO firms’ decision to voluntarily create an audit committee, and the effect of governance characteristics on the quality of disclosure as measured by management forecast errors and on the cost of capital as measured by IPO underpricing. Their results seem to indicate that the creation of an audit committee is more likely when the board of directors is larger, a higher proportion of its members are independent and it is not chaired by the firm’s CEO. Governance characteristics do not seem to affect the quality of financial information issued by IPO firms. Boulton, Smart & Zutter (2007) suggested that IPO initial returns are greater in countries offering stronger protections to investors. These results hold for various country-level proxies of governance and are both economically and statistically significant. In those nations, that offer lower levels of investor protection, underpricing is less likely to be used as an instrument to limit legal liability or to maintain control because managerial control is implicit due to a general disregard for investor’s rights, leading to lower initial returns (on average) in these countries. Larry (2009) mentioned that the ownership edifice has a bearing on corporate governance; legal units as well as foreign ownership have a influence on long run performance. It also mentioned that the outside directors and the issue stock exchange have no significance influence. Those firms which are having high growth potential and huge base are considered more highly by the market. Kumar & Singh (2010) examined that a meaningful policy on Corporate Governance must provide empowerment to the executive management of the Company, and simultaneously create a mechanism of checks and balances which ensures that the decision making powers vested in the executive management is not only misused, but is used with care and responsibility to meet stakeholder aspirations and societal expectations. Corporate governance is also concerned with the ethics, values and morals of a company and its directors. Boulton,A Smart & ZutterA (2010) described that underpricing is a cost that is paid to maintain the control by insiders in countries with legal systems. They reported negative relation between underpricing and post-IPO outside block holdings but a positive association with private control benefits. Hearn (2010) findings suggest that the establishment of independent audit and remuneration committees to monitor directors and insiders is at best superfluous with their presence actually increasing levels of asymmetric information and underpricing. However the separation of the roles of CEO and Chairman and the founder-entrepreneur ceding control of CEO role are beneficial mechanisms in signaling quality to potential outside investors.

Year

Author

Published in

Result and Conclusion

1961

Cerf

Corporate Reporting and Investment Decisions, Berkely, California: The University of California Press. Corporate attributes or characteristics have been used as a basis for explaining the level of disclosure in the corporate annual report 1974 & 1988a

Buzby (1974) and Wallace (1988a)

Buzby, S. L. (1974). Selected items of Information and their Disclosure in Annual Reports. The Accounting Review, 49 (3): 423-435. Wallace, R. S. O. (1988a). Intranational and International Consensus on the Importance of Disclosure Items in Financial Reports: A Nigerian Case Study. British Accounting Review, 20: 223-265. According to disclosure of information in corporate annual reports is considered ‘adequate’ if it is relevant to the needs of users, capable of meeting those needs, and timely released. 1979

Pastena

Pastena, V. 1979. ”Some Evidence on the SEC’s System of Continuous Disclosure.” The Accounting Review 54 (4): 776-783. The earliest study in accounting dealing with non periodic reporting. It studies the impact of the timeliness of Form 8-K current report filings in the United States. Form 8-Ks are filed to announce the occurrence of material events. He terms such filings ”continuous disclosure” and finds significant abnormal market returns around the time firms issue a press release regarding these filings. 1986

Hoskin, Hughes, and Ricks

Hoskin, R. E., J. S. Hughes, and W. E. Ricks. 1986. ”Evidence on the Incremental Information Content of Additional Firm Disclosures Made Concurrently with Earnings.” Journal of Accounting Research (Supplement): 1-32. After Pastena (1979), Hoskin, Huges, and Ricks (1986) find that specific announcements provide additional information over and above earnings announcements, and Carter and Soo (1999) show that timelier filings are more informative. 1994

Wallace et. Al.

Wallace, R. S. O., K. Naser, and A. Mora (1994). The Relationship Between the Comprehensiveness of Corporate Annual Reports and Firm Characteristics in Spain. Accounting and Business Research, 25 (97): 41-53. Further Research of, Cerf (1961) studied. Disclosures have been classified into three categories. The categories are structure related, performance related and market variables. 1994

Ahmed and Nicholls,

Ahmed, K., and D. Nicholls (1994). The Impact of Non-financial Company Characteristics on Mandatory Disclosure Compliance in Developing Countries: The Case for Bangladesh. The International Journal of Accounting, 29: 62-77. Regulatory forces have been identified as consisting of the stock market, legislation and accounting practice 1997

Ramsay and Hoad

Ramsay I M and Hoad R (2009) Disclosure of corporate governance practices by Australian companies , www.ssrn.com Studied the disclosure practices of Australian companies by examining the annual reports of 268 listed companies. They found that the extent and quality of disclosure are typically better for larger companies than for smaller companies. 2002b

Francis, Schipper, and Vincent

Francis, J. R., K. Schipper, and L. Vincent. 2002b. ”Expanded Disclosures and the Increased Usefulness of Earnings Announcements.” Accounting Review 77 (3): 515-547. Show that returns are affected by both firm and analyst disclosures. Overall, these studies establish that material disclosures and timelier disclosures are price informative. 2003

Michael, Lee, Johns

Mishoal, lee, Johns 2003. “The Determinants and impacts of disclosure before and after an IPO.” The University of Sydney, Accounting Honours Dissertation Nov 2003: Page:8 https://www.philiplee.id.au/research/LeeJohnsBComHons.pdf Factors that drives changes in a firm’s disclosure before and after IPO How these changes impacts on returns How antecedent disclosure impacts on trading of the stock in the initial secondary market. 2003

Gupta, Nair and Gogula

Gupta A., Nair A. P. and Gogula, R. (2003), “Corporate Governance Reporting by Indian Companies: A Content Analysis Study,” The ICFAI Journal of Corporate Governance, Volume 2, No. 4, pp. 7-18 Analyzed the CG reporting practices of 30 selected Indian companies listed in BSE. The CG section of the annual reports for the years 2001-02 and 2002-03 had been analyzed by using the content analysis, and least square regression technique was used for data analysis. The study found “variations in the reporting practices of the companies, and in certain cases, omission of mandatory requirements as per Clause 49.” 2004

Bushman, Piotroski, and Smith

Bushman, R. M., Piotroski, J. D., and Smith, A. J. 2004. What determines corporate transparency? Journal of Accounting Research 42: 207-252. Define corporate transparency as the availability of firm-specific information to outside investors and stakeholders. Furthermore, they argue that the availability of information is critical to resource allocation decisions and economic s growth. 2005

Collett and Hrasky

Collett P., and Hrasky S. (2005). Voluntary Disclosure of Corporate Governance Practices by Listed Australian Companies, Journal of Corporate Governance: An International Review, Volume 13, No.2, pp.188-196. Analyzed the relationships between voluntary disclosure of CG information by the companies and their intention to raise capital in the financial market. The study found out that “only 29 Australian companies made voluntary CG disclosure, and the degree of disclosures were varied from company to company.” 2005

Bhattacharyya and Rao

Bhattacharyya, Asish K and Sadhalaxmi Vivek Rao (2005), “Economic Impact of ‘Regulation on Corporate Governance’: Evidence from India” Examined whether adoption of Clause 49 predicts lower volatility and returns for large Indian firms, they compare a one-year period after adoption (starting June 1, 2001) to a similar period before adoption (starting June 1, 1998). The logic is that Clause 49 should improve disclosure and thus reduce information asymmetry and thereby reduce share price volatility. 2006

Barako et al.

Barako D. G., Hancock Phil and Izan H.Y. (2006), “Factors Influencing Voluntary Corporate Disclosure by Kenyan Companies,” Corporate Governance: An International Review, Volume 14, No.2, pp. 107-125. Examined the extent of voluntary disclosure by the Kenyan companies over and above the mandatory requirements. The results revealed that “the audit committee was a significant factor associated with level of voluntary disclosure, while the proportion of non-executive directors on the board was negatively associated.” 2006

Subramanian

Subramanian S. (2006), “Management Control and Differences in Disclosure Levels: The Indian Scenario,” The ICFAI Journal of Corporate Governance, Volume 5, No. 1, pp. 16-33. He identified the differences in disclosure pattern of financial information and governance attributes. The study used the Standard & Poor’s “Transparency and Disclosure Survey Questionnaire” for collection of data. The study finally concluded that “there were no differences in disclosure pattern of public/private sector companies, as far as financial transparency and information disclosure were concerned.” 2006

Kamal, Al-Hussaini, Al-Kwari and Nuseibeh

Kamal, N., Al-Hussaini, A., Al-Kwari, D., & Nuseibeh, R. (2006). Determinants of corporate social disclosure in developing countries: The case of Qatar. Advances in International Accounting, 19, 1’23. The study examined to test the validity of theories employed in the literature to explain variation in the extent of corporate voluntary disclosure within the corporate social disclosure context under Qatari companies. The findings indicate that variations in corporate social disclosure by the sampled Qatari companies are associated with the firm size, business risk and corporate growth. 2008

Aljifri

Aljifri, K. (2008). Annual report disclosure in a developing country: The case of the UEA. Advances in Accounting, 24, 93 100. Examined the extent of disclosure in annual reports of 31 listed firms in the UAE and also determined the underlying factors that affect the level of disclosures. The study hypothesized that four main factors would affect the extent of disclosure in the UAE, namely, the sector type (banks, insurance, industrial, and service), size (assets), debt-equity ratio, and profitability. Findings indicated that significant differences were found among sectors; however, the size, the debt-equity ratio, and the profitability were found to have insignificant association with the level of disclosure. 2009

Bala N balasubramanan (2009)

Bala Subramananan , Bernard S. Black (2009) Firm level corporate governace in emerging markets a case study of India, www.ssrn.com Studied the corporate governance practices of firms in India prior to clause 49 of listing agreement made mandatory to all listed companies. He provided a detailed overview of the practices of publicly traded firms in India, and identified areas where governance practices are relatively strong or weak, relative to developed countries. Also examined whether there is a cross-sectional relationship between measures of governance and measures of firm performance Found evidence of a positive relationship for an overall governance index and for an index covering shareholder rights. The association is stronger for more profitable firms and firms with stronger growth opportunities. 2009

Madan Lal Bhasin

Madan Lal Bhasin (2009) Corporate governance disclosure practices A portrait of developing countries, International Journal of Business and Management, www.ssrn.com Analyzed the CG disclosure practices in India using the secondary sources of information, both from the Report on CG and the Annual Report of Reliance Industries Limited (RIL) for the financial year 2008-2009. In order to ascertain how far this company is compliant of CG standards, a ‘point-value-system’ has been applied which shown ‘very good’ performance, with an overall score of 85 points and conclude that RIL group is in the forefront of implementation of “best CG practices in India. 2010

James C. Spindler

James C. SpindlerAƒ- This draft: January 23, 2010, IPO Underpricing, Disclosure, and Litigation Risk He provides support for these theories and suggests a causal mechanism for why prospectus disclosure does not eliminate information asymmetry. He find that Consistent with the asymmetric information theories, U.S. IPO underpricing is a negative function of the amount of prospectus disclosure, and The amount of prospectus disclosure may be limited by threat of subsequent legal liability.

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