Bank IPOs and Regulations: Cross-Country Evidence

Maria Eleni K. Agoraki; Dimitrios Gounopoulos; Georgios P. Kouretas

doi:10.1111/fire.70044

Bank IPOs and Regulations: Cross-Country Evidence

Maria Eleni K. Agoraki, Dimitrios Gounopoulos, Georgios P. Kouretas

Research output: Contribution to journal › Article › peer-review

Abstract

The present paper investigates the effect of banking industry regulations on bank initial public offering (IPO) underpricing. We approach this question from both a micro-level and macro-level regulatory perspective. First, we conduct our analysis within a micro framework, focusing on the effect of disclosure rules on IPO underpricing. Second, we examine the effect of regulatory and supervisory indices on bank regulations related to the three Pillars of Basel II, as expanded by Basel III (i.e. capital requirements, supervisory power, and market discipline) as well as restrictions on bank activities constructed using the World Bank database. We employ a dataset of 948 bank common share IPOs across 41 countries, covering the period from January 1994 to December 2020. Our findings indicate that stronger banking regulations, both at the disclosure and supervisory levels, are associated with significantly lower IPO underpricing. By improving transparency and monitoring, regulatory frameworks that enhance market discipline and expand supervisory authority improve the integrity of the IPO process, leading to offer prices that more accurately reflect the underlying value of the issuing banks. IPOs listed under a strict regulatory framework experience lower levels of underpricing. We attribute our results to intense monitoring, where regulations that promote market discipline result in better outcomes for the banking sector. Consequently, economic rents are curtailed, and the benefits to investors increase. These results suggest that reducing information asymmetries through regulation contributes to more efficient capital allocation. To test the robustness of our findings, we conduct an additional analysis only for the U.S. banks’ IPO initial returns, subject to additional institutional reforms in the U.S. financial industry. These results corroborate our baseline conclusions, further reinforcing the observed negative relationship between IPO underpricing and the strength of the regulatory and supervisory framework.

Original language	English
Journal	Financial Review
Early online date	10 Dec 2025
DOIs	https://doi.org/10.1111/fire.70044
Publication status	E-pub ahead of print - 10 Dec 2025

Acknowledgements

An earlier version of the paper was presented at the 2024 International Conference in Banking and Financial Studies, University of Catania, Italy, and thanks are due to conference participants. The paper was also presented at seminars at Athens University of Economics and Business, European Institute University, Michigan State University, Queen Mary University London, Stetson University, University of Bath and University of Essex, and we thank seminar participants for many helpful comments and discussions. Kouretas acknowledges the hospitality of Stetson University, that International Monetary Fund, Michigan State University, Drexel University, Fordham University and the University of Chicago in Illinois. Kouretas also acknowledges generous financial support by Stetson University under Deans’ research grant, by the Research Centre of Athens University of Economics and Business under Research grants 1152098 and 11372101, by the IPAG Business School Senior Research Affiliate research grant and by the Research Centre of the University of Crete under Research grant 2987. We thank Angela De Martiis, Richard Baillie, George Constantinidis, Sris Chatterjee, Dimitris Georgoutsos, Iftekhar Hasan, Evzen Kocenda, Roman Krauessl, Dominik Maltritz, Raoul Minnetti, Steve Ongena, Francisco Nadal de Simone, Panagiotis Politsidis, Oleg Telegin, Ahmed Tuncez, George Tavlas and George Tsetsekos for stimulating discussions on earlier drafts of the paper. We also thank the Editor Michael Pagano and two anonymous referees for their valuable comments that improved the manuscript irrevocably. The usual caveat applies.

Funding

The publication of this article in OA mode was financially supported by HEAL-Link.

Keywords

Bank IPO underpricing
disclosure
market discipline
regulation

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1111/fire.70044Licence: CC BY-NC-ND

Cite this

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Bank IPOs and Regulations: Cross-Country Evidence

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