Do differences in institutional and legal environments explain cross-country variations in IPO underpricing?

We empirically analyse the determinants of Initial Public Offering (IPO) underpricing using panel data for 24 countries over the period 1988--2005. Our hypotheses stress the importance of institutional and legal factors in explaining cross-country variations. We find evidence that underpricing is higher in countries with stronger protection of outside investors, suggesting that incumbent managers try to use underpricing as a tool to safeguard their private benefits of control when going public. Moreover, the results show that underpricing is reduced when stronger law enforcement and the availability of accounting information reduce the value of private benefits of control.