Going concern opinions and IPO pricing accuracy
Matanova, Natalia Steigner, Tanja Yi, Bingsheng Zheng, Qiancheng
Matanova, Natalia
Steigner, Tanja
Yi, Bingsheng
Zheng, Qiancheng
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Publication Type
Journal article
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Supervisor
Publication Year
2019
Journal
Review of Quantitative Finance and Accounting
Book
Publication Volume
53
Publication Issue
Publication Begin page
195
Publication End page
238
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Abstract
In a marked shift, it has become relatively more common for ordinary initial public offerings (IPOs) to contain going concern opinions (GCOs) in their offering documents. Examining the implications of such GCOs for IPO investors in a sample of ordinary IPOs from 2001 to 2012, we find that GCOs increase price accuracy by reducing price revisions and underpricing. Further, we show that GCO IPOs with reputable underwriters experience higher price revisions. Our underpricing analysis supports the lawsuit avoidance theory. We also provide novel evidence that the market can distinguish between temporarily constrained GCO IPOs and those with persistent problems that receive a second GCO post-IPO. Overall, this paper contributes to the existing literature by shedding light on whether GCOs contained in IPO prospectuses provide material information and result in better pricing mechanisms.
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IPOs