IFRS and IPO underpricing: evidence from Italy

Abstract

This study examines the impact of the IFRS adoption on IPO underpricing; the latter is, as known, the positive spread between the first day of trading closing price and the offer price of a newly issued share. The underpricing phenomenon is usually associated with the information asymmetry among the actors involved in the process of listing. Some scholars suppose that IPO firms' usage of the IFRS, rather than the domestic GAAP, affects IPO underpricing through two mechanisms: 1) the quality; 2) the comparability of the financial reports. Our study is the first research that studies the impact of the IAS/IFRS on the IPOs underpricing in the Italian stock market. We find that the IFRS adoption is not associated with a decrease in IPO underpricing and that the trend of the financial market is the only factor associated with this phenomenon. Referring to the Italian stock market, our results suggest that the IFRS adoption does not reduce information asymmetries among investors, probably due to the lax of enforcement which seems to characterise the Italian environment.