Underpricing, Stock Allocation, Ownership Structure and Post-Listing Liquidity of Newly Listed Firms

35 Pages Posted: 6 Jun 2001 Last revised: 31 Mar 2011

See all articles by Peter K. Pham

Peter K. Pham

Australian School of Business - University of New South Wales; Financial Research Network (FIRN)

Petko S. Kalev

La Trobe Business School

Adam B. Steen

Swinburne University of Technology

Date Written: January 1, 2001

Abstract

This study investigates the relationship between underpricing, ownership structure and post-listing liquidity of initial public offerings (IPOs). It is argued that higher underpricing induces both broader investor participation and creates a more diffuse ownership structure. These two factors are in turn positively associated with the level of post-listing trading, and therefore offer an explanation of how underpricing can influence liquidity. Using a sample of Australian IPOs, we provide evidence of statistically significant relationship between underpricing and various proxies for shareholding distribution and liquidity. This result remains robust after controlling for a number of potential underlying factors that may drive both underpricing and ownership allocation decisions. Overall, our analysis suggests that liquidity is a partial but important benefit of underpricing an IPO.

Keywords: Allocation process, Initial public offerings, Ownership structures, Post-listing liquidity, Underpricing

JEL Classification: G24, G32

Suggested Citation

Pham, Peter Kien and Kalev, Petko S. and Steen, Adam B., Underpricing, Stock Allocation, Ownership Structure and Post-Listing Liquidity of Newly Listed Firms (January 1, 2001). Journal of Banking and Finance, Vol. 27, 2003, Available at SSRN: https://ssrn.com/abstract=271078 or http://dx.doi.org/10.2139/ssrn.271078

Peter Kien Pham

Australian School of Business - University of New South Wales ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev (Contact Author)

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Adam B. Steen

Swinburne University of Technology ( email )

Faculty of Business & Enterprise - Accounting
3122 Victoria
Australia
+61 3 9214 5851 (Phone)
+61 3 9819 2117 (Fax)

HOME PAGE: http://www.swin.edu.au/business/stafflist/staff/asteen.html

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