Legal Perception and Finance: The Case of IPO Firm Value

Legal Perception and Finance: The Case of IPO Firm Value

Gerhard Schnyder, Anna Grosman, Kun Fu, Mathias Siems, Ruth V. Aguilera

Series number :

Serial Number: 

Date posted :

May 28 2021

Last revised :

May 28 2021
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  • law and finance • 
  • entrepreneurial finance • 
  • initial public offerings (IPOs) • 
  • Corporate governance • 
  • perception • 
  • shareholder protection

In this paper, we contribute to the literature on institutional determinants of IPO valuation.

We introduce the concept of ‘legal signaling,’ which focuses on the perception of the quality of law and thus complements the existing institutional approaches to IPO valuation which consider the quality of the positive law (‘standard view’) and firm-level corporate governance practices (‘firm signaling view’). Our approach explicitly models the difference between the effect of the positive law and the effect of the perception of law on IPO value. Based on a worldwide longitudinal dataset of IPO performance across a large number of countries, we find strong support for the claim that the perception of the quality of law is more important than its actual quality to explain post-IPO firm value. This effect holds regardless of whether the law’s quality is correctly perceived or misperceived. Overall, our findings underscore the need for a more sophisticated theorization of the ways in which law affects entrepreneurial finance.

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Publication Title: 
Accepted for publication in British Journal of Management (special issues on Entrepreneurial Finance in Honour of Mike Wright)


Real name:
Kun Fu
Real name:
Anna Grosman
Loughborough University London
Real name:
Gerhard Schnyder
Real name:
Ruth V. Aguilera