Using a large firm-level dataset of 2920 IPOs from 21 countries we examine the impact of country-level institutional characteristics on the underpricing of IPOs. Through hierarchical linear modeling we are able to control for firm-specific and issue-specific characteristics and test whether country-specific institutional characteristics add explanatory power to explain the level of underpricing. Our results show that about 10% of the variation in the level of underpricing is between countries. The quality of a country’s legal framework, as measured by its level of investor protection, the overall quality of its legal system and its level of legal enforcement, reduces the level of underpricing significantly.

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ERIM Top-Core Articles
Journal of Banking & Finance
Erasmus Research Institute of Management

Engelen, P-J, & van Essen, M. (2010). Underpricing of IPOs: Firm-, issue- and country-specific characteristics. Journal of Banking & Finance, 34(8), 1958–1969. doi:10.1016/j.jbankfin.2010.01.002