Going-Concern Initial Public Offerings

Posted: 16 Aug 1998

See all articles by Michael Willenborg

Michael Willenborg

University of Connecticut - Department of Accounting

James C. McKeown

Pennsylvania State University

Date Written: June 1998


This study examines the role of going-concern (GC) audit opinions in initial public offerings of equity securities. Concentrating on the "small deal" (proceeds up to $10 million) segment of the IPO market, we find that GC opinions appear to be useful in evaluating IPO securities in at least two areas. Adding GC information to a delisting model using other publicly available information, we find that the explanatory power of the model is significantly increased. We also find that securities with GC opinions suffer less first-day underpricing than similar securities without GC opinions. Based on Rock's (1986) model, this implies that firms with GC opinions have less ex ante uncertainty (regarding the true value of their IPO shares) than non-GC firms. Thus the GC opinions seem to reduce ex ante uncertainty for investors.

JEL Classification: M49, G32, G12

Suggested Citation

Willenborg, Michael and McKeown, James C., Going-Concern Initial Public Offerings (June 1998). Available at SSRN: https://ssrn.com/abstract=103988

Michael Willenborg (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269
United States
860-486-3020 (Phone)
860-486-4838 (Fax)

James C. McKeown

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-865-1809 (Phone)
814-863-8393 (Fax)

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