Abstract
This study explores the effects of interactions among key stakeholders, i.e., auditors, underwriters, and firm owners on IPOs’ first-day returns in selected OECD nations. It also examines the alteration effects of legal origin (Common law and Civil law) on the relationship between the interacted key stakeholders and IPOs’ first-day returns. A total of four thousand one hundred and sixty-four IPOs from twenty-eight OECD nations are included in this study. Since it is cross-sectional data, a two-stage least square regression is applied. The empirical outcomes indicate that, in general, the interacted reputable underwriters and auditors have a positive impact on IPOs’ first-day return. The relationship is modified between common law and civil law nations, whereby in civil law nations, no significance is demonstrated except for the interaction between the reputable auditors and underwriters. In the common law nation, interactions between reputable auditors and ownership retention have an impact on IPOs’ first-day return. The research findings provide outlooks into an IPO framework for issuers, investors, and regulators. Issuers may want to weigh carefully the costs and benefits of hiring credible auditors and underwriters when going public as they act as signaling agents. As for the investors, they should take into consideration the involvement of reputable underwriters and auditors and the degree to which the IPO firms retain ownership, as the interactive effects give clear signals on firm valuation and IPOs’ first-day returns. Regulators may find the findings informative concerning the creation of a more organized regulatory and financial system that could lead to a deeper and more open financial market.
Highlights
It is contended that auditors and underwriters are prominent players in the business world, and they are among the main stakeholders in an initial public offering setting
As Beatty and Welch [34], Cooney et al [35], Bates and Dunbar [36], Loughran & Ritter [37], Liu & Ritter [45], Angelia and Basana [33], Albada, Low and Yong [18], and Ong, Mohd-Rashid, and Taufil-Mohd [19], have reported, investors view the above as a prospect to raise their demand for these secondary-market IPOs, pushing the value of the shares up and eventually leading to higher first-day returns. As this analysis uses a multi-national dataset of different legal regimes, we further examine how the legal framework of each country influences the relationship related to the interaction amongst ‘underwriters and auditors,’ ‘underwriters and firm owner retention’, and ‘auditors and firm owner retention’ on first-day returns of IPOs
The results indicate significance for the relationship between the interacted ‘reputable auditors and underwriters’ and IPOs’ first-day returns, Hypothesis 1 (H1) is supported, while Hypothesis 2 (H2) and Hypothesis 3 (H3) are not supported
Summary
It is contended that auditors and underwriters are prominent players in the business world, and they are among the main stakeholders in an initial public offering (hereinafterIPO) setting. This study investigates the influence of interactions among these key stakeholders on the IPO’s initial returns in a multinational setting, i.e., OECD nations. Though these signaling variables have been extensively examined, the implications of an interplay between them on IPOs’. A study on the interactive effects could give further insight and an enriched implication of the consolidated reputation capital of these stakeholders and their reciprocal influence, mainly in terms of investors’ perceptions of the IPO firm’s credibility. The interactions between firm owners-auditors and firm owners-underwriters may affect the signals sent to potential investors in terms of IPO pricing, IPO firm reputation, and Sustainability 2021, 13, 6281.
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