The Effects of Institutional Factors on the Underpricing of Initial Public Offerings

Sammanfattning: This paper investigates the effects of several institutional factors on IPO underpricing. We study how indices reflecting the degree of investor protection, the quality of the legal system and the extent of economic freedom explain variations in first day returns between countries. More specifically, we hypothesise that increased investor protection on the country level increases underpricing and we find some evidence for this when examining 9 025 IPOs across 18 countries from 1995 to 2018. We also hypothesise that better developed legal institutions will lead to less underpricing, where our evidence is mixed. There is no evident consensus in previous literature and we therefore provide additional empirical findings and suggest possible explanations for prevailing contradictions.