Securities litigation,withdrawal risk and initial public offerings |
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| Authors: | Qing Hao |
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| Affiliation: | 1. School of Industrial Management, Ho Chi Minh City University of Technology, Vietnam National University – Ho Chi Minh City, 268 Ly Thuong Kiet Street, District 10, Ho Chi Minh City, Viet Nam;2. Manning School of Business, University of Massachusetts Lowell, 1 University Avenue, Lowell, MA 01854, United States;3. College of Business, Louisiana Tech University, 502 W Texas Avenue, Ruston, LA 71270, United States;1. Faculty of Management, Tel Aviv University, Israel;2. Adelaide Business School, The University of Adelaide, Australia |
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| Abstract: | ![]()
I examine the relations between litigation risk, withdrawal risk, and the costs of going public using a sample of withdrawn and completed initial public offerings (IPOs) filed during 1996–2005. Firms with a higher probability of offer withdrawal face higher litigation risk if they complete these offers. Firms with higher litigation risk pay slightly higher gross spreads, but do not underprice their IPOs by a greater amount. Withdrawal probability is strongly and positively associated with underwriter gross spreads, consistent with underwriters charging fees that reflect the probability of not getting paid. When the pre-market demand for an IPO is weak, a higher withdrawal probability raises underpricing on completed deals. |
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