International IPO underpricing, earnings quality, and governance

Abstract

Examining a sample of more than 4,600 IPOs across 24 countries from 2000-2004, we find that firm- and deal-specific characteristics widely used in IPO single-country underpricing studies (e.g., offer size, underwriter reputation, and industry) can explain variation in an international cross section of initial returns. More importantly, we also find that country-level measures of earnings quality and governance characteristics explain differences in the international cross section of IPO underpricing. We find lower initial returns in countries with higher earnings quality and that underpricing is generally higher in countries with corporate governance systems that strengthen the position of investors relative to insiders.