U.S. Exchange Upgrades: Reducing Uncertainty Through a Two-Stage IPO

35 Pages Posted: 14 Jul 2016 Last revised: 7 Aug 2018

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance

Vladimir I. Ivanov

US Securities & Exchange Commission

Date Written: July 17, 2018

Abstract

We examine the effects on IPO uncertainty of an alternative going-public mechanism - the two-stage IPO, where a firm first gets quoted on the OTC market, and then upgrades to a national exchange where it first issues public equity. We find that a two-stage IPO firm experiences lower underpricing and return volatility than does a similar traditional IPO firm. Our study is the first to analyze the impact of U.S. pre-IPO disclosure and liquidity on levels of uncertainty and pricing at the IPO stage. We find that greater disclosure and liquidity during the first stage leads to greater reduction in IPO uncertainty. We control for the potentially endogenous nature of the two-stage IPOs by using a difference-in-difference analysis that utilizes two exogenous OTC market events.

Keywords: Initial Public Offering, Two-stage IPO, Pre-IPO market, Exchange upgrade, Underpricing, Information asymmetry, Stock volatility, Difference-in-difference test

JEL Classification: G24, G32, G34

Suggested Citation

Cole, Rebel A. and Floros, Ioannis V. and Ivanov, Vladimir, U.S. Exchange Upgrades: Reducing Uncertainty Through a Two-Stage IPO (July 17, 2018). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2808852 or http://dx.doi.org/10.2139/ssrn.2808852

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Ioannis V. Floros

University of Wisconsin - Milwaukee - Department of Finance ( email )

Milwaukee, WI 53201-0742
United States

Vladimir Ivanov (Contact Author)

US Securities & Exchange Commission ( email )

Washington, DC
United States
202-551-5307 (Phone)

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