Cross country analysis and international capital markets

My dissertation comprises of two essays: 1) IPO underpricing, evidence from international listing in US market and 2) The impact of auditing and voluntary information verification on default rate: evidence from small private business. The first essay compares patterns of initial public offering (IPO) underpricing and trading across United States and Chinese firms going public in the US market. The IPO process is complex and involves diverse economic issues such as the quality of publicly available information and the role of intermediaries. Information asymmetry and uncertainty regarding the market demand for the IPO affect the offer price as well as the number of shares offered to the public. The relationship between the offer price and the aftermarket price (end-of-first-day price), commonly referred to as "IPO underpricing," involves the interaction of all these economic factors. The first goal of my study is to examine the differential effects of information asymmetry and uncertainty of demand on IPO underpricing across Chinese and US firms. I find that there are significant differences in the estimation of demand as well as the level of underpricing across US and Chinese IPOs. I also examine whether intermediaries try to offer better terms to Chinese firms in order to increase their market share of Chinese business. I find no results to support this hypothesis, that is, the explicit costs of conducting an IPO does not differ across Chinese and US firms I conclude that the underwriters are more interested in building a market for their Chinese products to US investors by underpricing the issue and making it more attractive. The second essay examines whether audited financial information can improve the efficiency of small business financing as effectively as it helps capital allocations to public firms. Using an exclusive dataset from a private bank in China, I find that audited financial statements, customer loyalty and local knowledge of the business are significantly correlated with bank loan repayment by small businesses in China. A closer examination leads to less expected results. I find that Chinese audits do not generate any new information but act rather as a screening mechanism with regard to clients. In addition, larger groups seem to be less effective at helping each other suggesting that a free rider problem becomes a significant issue even in groups consisting of five members.Ph.D.Includes bibliographical reference