Local IPOs, Local Delistings, and the Firm Location Premium
44 Pages Posted: 30 Jun 2012 Last revised: 8 Nov 2016
Date Written: January 15, 2012
Borrowing a measure from ecology, we introduce a spatial dispersion index to quantify the firm traits related to firm geographic location and investigate firm exposure to local home bias and local investor risk tolerance as determinants of corporate market value. Consistent with the investor preference for local stocks, we find listed firms benefit from a location premium that increases with firm isolation and local investor wealth. IPOs and delistings are found to affect the market value of neighboring listed firms: isolated firms decrease in value when they cluster due to local IPOs while clustered firms increase in value as they become more isolated due to local delistings. Local firm clustering and risk tolerance also affect IPO underpricing. Empirical findings depict a framework where IPOs and delistings are locally jointly determined.
Keywords: Location premium; Local home bias; IPO; Delisting; Underpricing
JEL Classification: G11; G12
Suggested Citation: Suggested Citation