Litigation risk , strategic disclosure and the underpricing of initial public offerings

@inproceedings{Hanley2015LitigationR,
  title={Litigation risk , strategic disclosure and the underpricing of initial public offerings},
  author={Kathleen Weiss Hanley and Gerard Hoberg},
  year={2015}
}
Using word content analysis on the time-series of IPO prospectuses, we show that issuers tradeoff underpricing and strategic disclosure as potential hedges against litigation risk. This tradeoff explains a significant fraction of the variation in prospectus revision patterns, IPO underpricing, the partial adjustment phenomenon, and litigation outcomes. We find that strong disclosure is an effective hedge against all types of lawsuits. Underpricing, however, is an effective hedge only against… CONTINUE READING
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