The Impact of International Financial Reporting Standards on IPO Underpricing

This paper examines the impact of International Financial Reporting Standards (IFRS) on IPO underpricing in an international setting. Controlling for firms' choice of accounting standards, I find that IPO underpricing is lower for IPO firms using IFRS than those using domestic GAAP. In particular, I show that the impact of IFRS on IPO underpricing is larger for IPO firms listed in stronger enforcement jurisdictions. Focusing on comparability, I show that the use of IFRS reduces IPO underpricing compared with domestic GAAP because IFRS allow for a greater degree of comparability (i.e., a larger number of listed industry peers using the same accounting standards). However, the benefit of enhanced comparability from IFRS arises only when these industry peers are themselves listed in jurisdictions with high quality enforcement. That is to say, high-quality enforcement is critical in enhancing the overall benefit of increased comparability under IFRS.