Litigation Risk and IPO Underpricing

@inproceedings{Lowry2002LitigationRA,
  title={Litigation Risk and IPO Underpricing},
  author={Michelle Lowry and Susan Z. Shu},
  year={2002}
}
We examine the relation between litigation risk and IPO underpricing and test two aspects of the litigation-risk hypothesis: (1) firms with higher litigation risk underprice their IPOs by a greater amount as a form of insurance (insurance effect) and (2) higher underpricing lowers expected litigation costs (deterrence effect). To adjust for the endogeneity bias in previous studies, we use a simultaneous equation framework. Evidence provides support for both aspects of the litigation-risk… CONTINUE READING

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