Litigation Risk, Strategic Disclosure and the Underpricing of Initial Public Offerings
By K. Hanley, Gerard Hoberg. 2012
275 citations recorded by the source corpus.
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.
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/e3e5459a7ee6c01cc64bd490e612ddee4ff50233
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In Accounting
- Roni Michaely
- Ekaterina Volkova
- Michelle René Lowry
- Gerard Hoberg
- Jay R. Ritter
- Douglas J. Skinner
- John R. Graham
- Erik Lie
In Economics and Econometrics
Citations in the corpus
- Underwriter Networks, Investor Attention, and Initial Public Offerings (2016, unknown): “…from the 1980s, later studies that make use of data from the 1990s and the 20 0 0s find a positive relation between underwriter reputation and underpricing (see, e.g., Aggarwal, Krigman, and Womack, 2002; Hanley and Hoberg, 2012 ). and dummy variables for hi-tech and VC-backed firms as controls.”
- Taxes and Financial Constraints: Evidence from Linguistic Cues (2015, unknown): “Hanley and Hoberg (2012) also find that firm managers who strategically disclose more risk factors in their IPO prospectus have lower probability of being sued in subsequent lawsuits.”
- The Effect of Issuer Conservatism on IPO Pricing and Performance (2013, unknown): “More generally, if we view prospectus conservatism as information disclosed by issuers to hedge against litigation risk, our results are also consistent with the finding of Hanley and Hoberg (2012). That is, issuer concern about litigation risk positively affects the amount of information that is di”
- Initial Public Offerings: A synthesis of the Literature and Directions for Future Research (2018, background): “Do Initial Public Offering Firms Purchase Analyst Coverage with Underpricing? The Journal of Finance, 59(6), 2871-2901. Coles, J. L., Daniel, N. D., & Naveen, L. (2007). Boards: Does one size fit all? Journal of Financial Economics 87, 329 – 356.. Cook, D. O., Kieschnick, R., & Van Ness, R. A. (2006”