Underpricing, Stock Allocation, Ownership Structure and Post-Listing Liquidity of Newly Listed Firms
35 Pages Posted: 6 Jun 2001 Last revised: 31 Mar 2011
Date Written: January 1, 2001
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: Suggested Citation