Research Snapshots

SEC role prevents IPO hyping in US

Amidst recent talk of financial regulatory frameworks lacking impact, early results from a research project headed by Dr Bing Li, Assistant Professor in the Department of Accountancy are suggesting that regulation can make a difference. Dr Li is the Principal Investigator for The Oversight Role of Regulators, a project which has attracted an Early Career Scheme (ECS) grant from the Research Grants Council (RGC) in Hong Kong. Dr Li is investigating how regulators' oversight affects a company's information environment. The oversight role of the United States Securities and Exchange Commission (SEC) is analysed by looking at the effects of comment letters issued by the SEC in the IPO process. In this setting information is often not very transparent because firms tend to lack track record, and issuers may draw an over-optimistic picture of their companies in order to maximize the funds attracted. Some preliminary tests conducted by Dr Li show that IPO issuers often revise their offering price and proceeds downward after the issuance of SEC comment letters. The SEC's monitoring role is therefore significant in that it tends to prevent companies engaged in IPOs from hyping their stocks.