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Country-level accounting enforcement and IPO underpricing

Florian Dreyer and Jochen Bigus

Using a sample of up to 2,488 IPOs in 32 countries in the years 2011-2017, we predict and find that higher levels of country-level accounting enforcement are associated with less underpricing, both directly, but also indirectly, by mitigating the impact of shareholder litigation. We show that accounting enforcement matters in reducing the cost of equity: a standard deviation increase in the accounting enforcement score is associated with a 9.3%-point decrease in underpricing.

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