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The Value of Capital Market Regulation: IPOs Versus Reverse Mergers
Author(s) -
Carpentier Cécile,
Cumming Douglas,
Suret JeanMarc
Publication year - 2012
Publication title -
journal of empirical legal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 24
eISSN - 1740-1461
pISSN - 1740-1453
DOI - 10.1111/j.1740-1461.2011.01247.x
Subject(s) - initial public offering , information asymmetry , business , listing (finance) , context (archaeology) , commission , private information retrieval , monetary economics , value (mathematics) , capital market , enterprise value , industrial organization , accounting , economics , finance , machine learning , computer science , paleontology , statistics , mathematics , biology
We analyze the economic consequences of disclosure and regulation within a context of significant information asymmetry and lenient regulation. In Canada, firms can enter the stock market at a prerevenue stage by fulfilling each of the requirements of an initial public offering or using reverse mergers. This backdoor listing method implies a smoother oversight by the securities commission and a shorter process based on private placements. Controlling for several dimensions, including self‐selection, we find that the choice of the listing method and regulation strictness significantly influence the value and long‐run performance of newly listed firms. These results are consistent with theories suggesting that a commitment by a firm to a stricter regulatory oversight lowers the information asymmetry component of the cost of capital, reducing the heterogeneity of expectations and mispricing.