Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect

Financial Management, 44(4), 785-810, 2015

Posted: 25 Aug 2008 Last revised: 2 Mar 2017

See all articles by Nesrine Bouzouita

Nesrine Bouzouita

Université Paris Dauphine

Jean-Francois Gajewski

University Savoie Mont-Blanc, IREGE

Carole Gresse

Université Paris-Dauphine, PSL

Date Written: January 15, 2015

Abstract

The positive relation between initial underpricing and liquidity in the secondary market several months after the initial public offering has been previously attributed to ownership dispersion induced by underpricing. We show that public information production can be another channel by which underpricing improves liquidity. Using a sample of IPOs undertaken on Euronext, we show that the analyst coverage engendered by initial underpricing reduces information asymmetry costs and illiquidity in the secondary market. Regarding information asymmetry, the impact is statistically more significant on measures based on adverse selection costs than on measures based on the proportion of informed traders in the market.

Keywords: IPO, initial underpricing, ownership structure, post-listing liquidity, information asymmetry, analyst coverage

JEL Classification: G12, G14, G32

Suggested Citation

Bouzouita, Nesrine and Gajewski, Jean-Francois and Gresse, Carole, Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect (January 15, 2015). Financial Management, 44(4), 785-810, 2015. Available at SSRN: https://ssrn.com/abstract=1253242 or http://dx.doi.org/10.2139/ssrn.1253242

Nesrine Bouzouita

Université Paris Dauphine ( email )

Place du Maréchal de Lattre de Tassigny
Paris, cedex 16 75775
France

Jean-Francois Gajewski

University Savoie Mont-Blanc, IREGE ( email )

4 Chemin de Bellevue
BP 80439
Annecy-le-Vieux, 74944
France
33 6 10 32 71 06 (Phone)
33 4 50 09 24 39 (Fax)

HOME PAGE: http://www.univ-savoie.fr/

Carole Gresse (Contact Author)

Université Paris-Dauphine, PSL ( email )

DRM
Pôle Universitaire Léonard de Vinci
Paris La Défense cedex, 92916
France
+33 (0)1 41 16 76 15 (Phone)
+33 (0)1 41 16 76 37 (Fax)

HOME PAGE: http://www.carolegresse.com

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