Going concern opinions and IPO pricing accuracy

Natalia Matanova, Tanja Steigner, Bingsheng Yi, Qiancheng Zheng

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)195-238
Number of pages44
JournalReview of Quantitative Finance and Accounting
Volume53
Issue number1
DOIs
StatePublished - Jul 15 2019

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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