Corporate governance and cost of external equity of IPOs underpricing

Abstract

This thesis empirically investigates the effects of corporate governance on the cost of external equity. In particular, this thesis examines the association between the investor protection and IPOs underpricing. Employing a large sample of IPOs from 10 countries during 1991 and 2005, the results show that investor protection affects underpricing; especially, the legal enforcement. This thesis also finds evidence that IPOs in bank based economies experience lower underpricing than IPOs in market based economies. The finding also suggests that the legal enforcement and liability standard through securities law play a significant role in mitigating information asymmetry. Overall, this thesis empirically demonstrates, for the first time based on cross-country evidence, the importance of investor protection as well as the certification role of bank monitoring to the cost of external equity.