Local corporate misconduct and local initial public offerings

Kuvvet, Emre; Palkar, Darshana D.

doi:10.1111/fire.12199

Cited by 5 publications

(9 citation statements)

References 100 publications

(151 reference statements)

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“…Kanagaretnam et al (2022) echo these findings using an international sample of 36 countries. Kuvvet and Palkar (2020) find that IPO underpricing is higher for firms located in U.S. regions with high fraud density. These studies argue that the IPO firm's location is critical in establishing the trust-IPO underpricing relationship.…”

Section: Introductionmentioning

confidence: 78%

“…The discovery of corporate fraud often triggers a private securities class action (SCA) lawsuit in the United States. Following the literature (Bonini and Boraschi, 2010;Wang et al, 2010;Kuvvet and Palkar, 2020), we use SCAs as a proxy for the presence of corporate fraud [3]. We uncover a positive and significant association between fraud revelation and the subsequent underpricing of IPOs within the same industry.…”

Section: Corporate Fraud and Industry Peer Effectsmentioning

confidence: 99%

“…Trust plays a crucial role in every commercial transaction (Arrow, 1972), in economic development (Fukuyama, 1995;Knack and Keefer, 1997;Zak and Knack, 2001) and in capital market participation (Guiso et al, 2008). Li et al (2019), Kuvvet and Palkar (2020) and Kanagaretnam et al (2022) register that regional trust affects an important capital market outcome, IPO underpricing. Adding to this research stream, we show that breakdowns in trust through fraud revelations result in a costly IPO process for newcomers within the industry.…”

Section: Corporate Fraud and Industry Peer Effectsmentioning

confidence: 99%

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Corporate fraud and industry peer effects on IPO underpricing

Palkar

2023

IJMF

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PurposeExisting studies suggest that negative impacts emanating from corporate fraud revelations may diffuse to other firms through lower trust and lower market participation. Extending this literature stream, the authors examine whether corporate fraud revelations are associated with higher costs of raising capital through initial public offerings (IPOs) for industry peers.Design/methodology/approachThe authors employ several analysis techniques including univariate analysis, multivariate regressions, propensity score matching methodology, and probit estimation. The sample consists of 3,015 US IPO firms for the 1996–2021 period.FindingsBy adopting US private securities class action lawsuits as a proxy for the presence of corporate fraud, the authors find that fraud revelations are associated with higher IPO underpricing, higher post-IPO stock return volatility and increased likelihood of withdrawal from the offering for industry peers. The findings are robust to alternative industry definitions and litigation proxies and to the inclusion of a battery of controls, including industry, state and year fixed effects.Originality/valueThis study presents private firms with an additional industry litigation factor to consider when assessing the marginal costs of going public.

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Section: Introductionmentioning

confidence: 78%

Section: Corporate Fraud and Industry Peer Effectsmentioning

confidence: 99%

Section: Corporate Fraud and Industry Peer Effectsmentioning

confidence: 99%

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Corporate fraud and industry peer effects on IPO underpricing

Palkar

2023

IJMF

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“…Of note, while raising capital, the typical IPO experiences substantial underpricing averaging around 20% of the offer price. Further, prior research shows underpricing is exacerbated when the IPO firm is surrounded by disreputable peers (Kuvvet & Palkar, 2020). This is a considerable disincentive for companies already having sufficient capital to fund their growth opportunities.…”

Section: Direct Listing Processmentioning

confidence: 99%

The impact of exchange listing on corporate governance: Evidence from direct listings

French

Morillon

Yore

et al. 2022

The Financial Review

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We use prior direct listings by public nonlisted REITs (PNLRs) to explore the impact of exchange membership on corporate governance. We study companies with public, but nonlisted shares in a unique setting where the influence of listing is distinct from the confounding effect of capital raising. Evidence suggests younger, more profitable companies with stronger governance and professional management are more likely to directly list. Institutional ownership increases after listing and these changes are not due to future capital raising. Moreover, internal corporate governance improves beyond the exchange's requirements, especially for those companies with greater stock liquidity and more institutional ownership.

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“…, 2017; Johnson et al. , 2007; Kuvvet and Palkar, 2020; Peng and Roell, 2008; Pukthuanthong et al. , 2017; Shivdasani and Song, 2011; Yu and Yu, 2011).…”

Section: Introductionmentioning

confidence: 99%

The spillover effects of financial misconduct on the value of cash of peer firms

Palkar

2022

Self Cite

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PurposePrior research has documented a guilt by association phenomenon whereby instances of corporate misconduct generate a negative spillover to innocent firms due to their shared industry membership with the wrongdoing firm. However, research on competitive dynamics predicts a positive spillover whereby some firms benefit from the revelation of financial misconduct by an industry peer. This study lends support to both these effects by highlighting the role product similarity plays in the understanding of investors' perceptions surrounding corporate misconduct.Design/methodology/approachThe study assesses the investors' valuation of cash using Faulkender and Wang's (2006) methodology. The difference-in-differences approach is employed to compare the market valuation of cash held by non-accused firms with higher and lower litigation spillover risk operating in industries with higher vs lower product similarity.FindingsThe findings show that an increase in the volume and severity of misconduct by industry peers is associated with an undeserved loss in the value of cash held by non-accused firms operating in industries with high product similarity. In contrast, firms that sell differentiated products stand to gain from the troubles of the accused peer. Moreover, non-accused firms in industries with high product similarity reduce capital expenditures more following misconduct accusations against peers to preserve cash in anticipation of future lawsuits.Originality/valueThis study contributes to the growing spillover literature that investigates how a crisis caused by one firm affects the valuation of its peers.

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Local corporate misconduct and local initial public offerings

Cited by 5 publications

References 100 publications

Corporate fraud and industry peer effects on IPO underpricing

Corporate fraud and industry peer effects on IPO underpricing

The impact of exchange listing on corporate governance: Evidence from direct listings

The spillover effects of financial misconduct on the value of cash of peer firms

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