The Private Benefits of Listing

Abstract:     
This paper documents the substantial private benefits of listing for insiders of issuing companies. It shows that insiders may not only be complacent about IPO underpricing, but that they may even profit from it. The paper uses a unique data set of prospectuses for 290 issuing companies at the Neuer Markt in Germany. Companies that choose for their executive stock option programs a strike price equal to the IPO offer price experience significantly higher levels of underpricing than companies that choose a strike price equal to the first market price of the stock. The level of underpricing is also positively influenced by the extent of allocations to family and friends programs. The results provide a rational explanation of why issuing companies, and in particular their executives, do not get upset about underpricing.

Number of Pages in PDF File: 34

Keywords: Underpricing, private benefits, going public

JEL Classification: G24, G32

working papers series