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Using an index which increases as a firm adopts more governance attributes, we find that 12.7% of foreign firms have a higher index than matching U.S. firms. The best predictor for whether a foreign firm adopts more governance attributes than a comparable U.S. firm is whether the firm comes from a common law country. We show that the value of foreign firms is negatively related to the difference between their governance index and the index of matching U.S. firms. This relation is robust to various approaches to control for the endogeneity of corporate governance and is consistent with the hypothesis that foreign firms are valued less because country characteristics make it suboptimal for them to invest as much in governance as comparable U.S. firms. Overall, our evidence suggests that firm-level governance attributes are complementary to rather than substitutes for country-level investor protection, so that better country-level investor protection makes it optimal for firms to invest more in internal governance. Our evidence supports the view that minority shareholders of a typical foreign firm would benefit from an increase in investment in governance, but that the firm's controlling shareholder and possibly other stakeholders would not.

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Prior research has assumed that underwriters post a stabilizing bid in the aftermarket. We find instead that aftermarket activities are less transparent and include stimulating demand through short covering and restricting supply by penalizing the f lipping of shares. In more than half of IPOs, a short position of an average 10.75 percent of shares offered is covered in 22 transactions over 16.6 days in the aftermarket, resulting in a loss of 3.61 percent of underwriting fees. Underwriters manage price support activities by using a combination of aftermarket short covering, penalty bids, and the selective use of the overallotment option.RESEARCHERS ARE STILL TRYING TO UNDERSTAND the price behavior of initial public offerings~IPOs!. 1 Short-run underpricing and long-run overpricing continue to be a puzzle. Underpricing refers to the initial trading of IPOs above the offer price in the immediate aftermarket, whereas overpricing refers to long-run underperformance. However, finance research has paid little attention to the specific activities of underwriters in the aftermarket that are likely to have an impact on IPO price performance. These interventions by underwriters are not well understood because of both lack of data and lack of transparency in industry practices. The unique data set used in this paper allows for the first time a comprehensive analysis of exactly how these aftermarket activities are conducted, the characteristics of IPOs in which un-* The McDonough School of Business, Georgetown University. The author thanks Bill Atkinson,

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