Reverse Mergers and the Welfare Effects of IPO Regulation
Date Issued
2014
Date
2014
Author(s)
Hsu, Ching-Lin
Abstract
This thesis studies the welfare effects of the government’s regulation on initial public offering (IPO). It establishes a signaling-game model to investigate whether stricter IPO regulation can improve social welfare. In the model, getting listed allows a firm to finance its investment project through equity issuance. There is information asymmetry between the firm and investors regarding the quality of the firm’s project. A firm can get listed through IPO or a reverse merger. Compared with the reverse merger, IPO allows investors to receive more precise information about the firm, but it is also more costly than the reverse merger.
It is shown that the way a firm gets listed can serve as a signal to investors. In addition, an increase in the cost of the IPO process may either increase or decrease social welfare. Although an increase in the cost of the IPO process raises dead-weight losses to society, it may reduce the probability that a bad project is financed through lowering the incentive of poor-quality firms to mimic good ones. This thesis has policy implications for the government’s regulation on IPO.
Subjects
初次公開發行
借殼上市
上市
初次公開發行規範
市場審核
社會福利
Type
thesis
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