Kiridaran Kanagaretnam
The findings are contained in an article published in the March edition of the Journal of Financial and Quantitative Analysis. The research was conducted by Kanagaretnam together with: Gerald Lobo, the Arthur Andersen Chair of Accounting at the University of Houston's C.T. Bauer College of Business; Lim Chee Yeow, an associate professor at the School of Accountancy at Singapore Management University; and Jason Jia, an assistant professor at Wilfrid Laurier University and a Schulich PhD graduate.
The researchers examined the relationship between financial literacy and IPO underpricing for a large sample of 14,831 IPOs from 34 countries over the 1998 to 2020 period. They used two measures of financial literacy that captured individuals' basic financial knowledge, including the ability to invest in stocks, bonds and mutual funds.
"Financial literacy is important for the efficient functioning of financial markets," says Kanagaretnam. "Financially literate individuals possess fairly advanced financial knowledge and are therefore better able to seek out higher-level financial news and analyst reports, which may disclose additional information."
The research study is one of the first to document the relationship between citizens' financial literacy and IPO underpricing and provides evidence that highlights the role of financial literacy in mitigating capital market inefficiencies.
To stay up to date with the latest news and events at the Schulich School of Business, click here.
This story was originally featured in YFile, York University's community newsletter.
