Does Disclosure Regulation Work? Evidence from International IPO Markets


  • Accepted by Jeffrey Pittman. We would like to thank the two reviewers and especially Jeffrey A. Pittman (editor) for their constructive suggestions. Earlier versions of the paper have benefited from the comments and suggestions of Zhihong Chen, Mark DeFond, Gilles Hilary, Mingyi Hung, Christo Karuna, Bin Ke, Clive Lennox, Chul Park, Mort Pincus, Siew Hong Teoh, T.J. Wong, Jerry Zimmerman. and seminar participants at the 2007 American Accounting Association FARS Midyear Conference, Baruch College, University of California–Irvine, China Europe International Business School, the Chinese University of Hong Kong, Fudan University, Hong Kong City University, HKUST, National Taiwan University, Singapore Management University, University of Arizona, University of Houston, University of Maryland, and the University of Texas at Dallas. We are also grateful to Ellen Hui Ling Lin for providing us with the international IPO sample and to Carol Frost, Elizabeth Gordon, and Andrew Hayes for providing us with their international stock exchange disclosure data. Thomas Walker gratefully acknowledges the financial assistance provided by the Canadian Social Sciences and Humanities Research Council, the Laurentian Bank of Canada, and Germany’s Alexander von Humboldt Foundation. Charles Shi wishes to express his appreciation for the financial support of the start-up grant from the School of Business, National University of Singapore.


This study examines whether IPO disclosure requirements mandated by countries’ securities laws are associated with variation in IPO underpricing in international IPO markets. Our empirical analysis uses a unique sample of 6,025 IPOs from 34 countries over the period from 1995 to 2002. We show for the first time that the stringency of disclosure requirements for IPO prospectuses is negatively associated with the extent of IPO underpricing, after controlling for various country- and firm-level determinants of underpricing. Moreover, we find that the disclosure effect on IPO underpricing is moderated by the extent of a country’s capital market integration. Taken together, our findings are consistent with the view that increased disclosure regulation appears to reduce IPO underpricing and hence the cost of equity, and that institutional factors such as capital market integration play an important role in understanding the economic consequences of disclosure regulation in international IPO markets.