Unintended regulatory consequences: Evidence from the Korean IPOs |
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Authors: | Kiyoung Chang Yong-Cheol Kim Young Sang Kim John H. Thornton |
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Affiliation: | 1. University of South Florida Sarasota-Manatee, College of Business, United States;2. University of Wisconsin-Milwaukee, United States;3. Northern Kentucky University, Haile/US Bank College of Business, United States;4. Kent State University, United States |
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Abstract: | We examine IPOs in Korea during the period August 2000–January 2002. We conclude that the high level of underpricing in Korean IPOs is the unintended consequence of regulations designed to promote fairness. Two aspects of the regulations distort the process — an “essential price” formula that severely understates the value of the firm; and, bid exclusion rules that give investors a strong incentive to cluster their bids so as to avoid being excluded from the offering. During our sample period the rules were changed somewhat. The result was a change to gaming behavior and somewhat less underpricing. |
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