There is a theoretical work suggesting that the level of IPO underpricing should be negatively associated with the level of trust in a society. However, a recent empirical work testing this theoretical prediction (using over 12,000 IPOs in located in 43countries in the world) finds that the relationship between trust and IPO is actually positive. That is the higher the level of trust in a society, the higher the IPO underpricing in a country. Hence the theory is not supported (i.e. does not hold). Find an explanation to this empirical finding. For your information trust in a society is defined as the fundamental confidence an individual has toward others to have a fair return in any contract.
Please do not write more than one page (single–spaced) to answer this question.
