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

• 成果类型: Article
• 署名作者: Hanley, Kathleen Weiss; Hoberg, Gerard
• 署名单位: University System of Maryland; University of Maryland College Park; U.S. Securities & Exchange Commission (SEC)
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.09.006
• 发表日期: 2012
• 页码: 235-254
• 关键词: Litigation risk; initial public offerings; Initial returns; PARTIAL ADJUSTMENT; Strategic disclosure

摘要

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 Section 11 lawsuits, those lawsuits which are most damaging to the underwriter. Underwriters who fail to adequately hedge litigation risk experience economically large penalties, including loss of market share. (C) 2011 Elsevier B.V. All rights reserved.