Does the legal system affect the cost of external financing? Evidence from IPO underpricing of foreign firms listed in US stock markets
by Shaokang Wang; Jing Jiang
International Journal of Economics and Business Research (IJEBR), Vol. 18, No. 2, 2019

Abstract: To study the effect of the legal system on the cost of external financing, we examine the degree of underpricing of the IPOs by foreign companies listed in the USA. We find that firms from highly corrupted countries have larger IPO underpricing. The quality of the home countries' public law enforcement reduces the degree of IPO underpricing. In particular, the criminal sanction for violations of securities laws is the most significant factor in reducing underpricing. The evidence shows that even when a non-US firm meets sophisticated US regulations and goes public in a US exchange, the degree of underpricing is still influenced by the legal and judicial system in the home country. Following La Porta et al. (2000a), we provide evidence against the functional convergence hypothesis (Coffee, 1999 and 2002).

Online publication date: Wed, 31-Jul-2019

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Economics and Business Research (IJEBR):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com