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  • A*

    Using an international sample of IPO firms from 36 countries and a country-level index for societal trust, we find strong evidence that societal trust is negatively associated with the degree of IPO underpricing. In cross-sectional analyses, we find that the effect of societal trust in reducing IPO underpricing is more pronounced when the information environment is less transparent, when the stock market environment is less robust, and when legal institutions are weaker, settings where the effect of trust is likely to be more salient. Our study contributes to and extends the literature by providing strong evidence that an informal institution such as societal trust has an important and consistent influence on international IPO underpricing.

  • FT50 A*

    Using an international sample of IPO firms and two country-level measures of financial literacy, we find strong evidence that financial literacy is negatively associated with IPO underpricing. In cross-sectional analyses, we find that the effect of financial literacy in reducing IPO underpricing is more pronounced when the information environment is less transparent. Employing path analysis, we document that information friction, firm transparency, and stock market participation are mechanisms that mediate this relationship. Our study contributes to and extends the literature by providing strong evidence that citizens’ financial literacy has an important and consistent influence on IPO underpricing.

  • A*

    Theory provides several channels linking the corporate life cycle and lending risks. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find an economically significant relationship between firm life cycle stage and lending spreads. Based on the Owen and Yawson (2010) life cycle stage classification, young firms are expected to pay at least 15 bps more than mature firms, whereas mature firms pay at least 11 bps more than old firms. According to the Dickinson (2011) cash flow classification, firms in the introduction and decline phases pay lending spreads that are 6 and 12 percent greater than firms in the mature phase. We explore omitted variables bias and instrumental variable estimation in robustness testing to alleviate endogeneity concerns. A mechanism analysis shows that credit risk, systematic risk, and idiosyncratic risk follow the corporate life pattern in accordance with loan spreads, suggesting that banks charge a premium to compensate for risk. Our results support the theoretical prediction that structural changes occur as firms evolve across the corporate life cycle.

Last update from database: 9/16/24, 10:02 PM (AEST)