Equity issue-specific versus broad regulatory protections against expropriation risk: International evidence from SEOs

We compare non-issue specific (broad) investor protections against expropriation by firm's insiders with regulations that specifically protect investors of new equity issues (issue-specific). Since in-nation regulations rarely change and are homogenous for all firms, it is difficult to compare...

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Bibliographic Details
Published in:Journal of international money and finance 2013-06, Vol.35, p.146-166
Main Authors: Gupta, Manu, Prakash, Puneet, Rangan, Nanda K.
Format: Article
Language:English
Subjects:
Comparative studies
Cross-national analysis
Equity
Expropriation
Expropriation risk
Information asymmetry
Investors
Legal risk
Protectionism
Regulation
Risk
Securities regulations
SEOs
Stock offerings
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Summary:We compare non-issue specific (broad) investor protections against expropriation by firm's insiders with regulations that specifically protect investors of new equity issues (issue-specific). Since in-nation regulations rarely change and are homogenous for all firms, it is difficult to compare issue- and non-issue-specific investor protection mechanisms in country-specific studies. We utilize cross-country differences in regulations to study the relative importance of issue-specific and broad regulatory protections. Using data on seasoned equity offerings (SEO), we find that SEO underpricing is related to broad protections. In particular, SEO underpricing is negatively (positively) related with the strength of ex-post (ex-ante) anti-self-dealing laws. Independent of broad protections, SEO underpricing is unaffected by issue-specific investor protections, that is, neither by disclosure requirements imposed on equity issuers nor by equity issue-specific liability rights conferred on investors. Interactions between broad protections and issue-specific protections indicate issue-specific protections reduce SEO underpricing only in countries with strong broad protections.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2013.02.003