Stock-Market Participation, the Going Public Decision and the IPO Underpricing

68 Pages Posted: 20 Mar 2017 Last revised: 16 Jul 2019

See all articles by Giulia Baschieri

Giulia Baschieri

University of Bologna - Department of Management

Andrea Carosi

University of Sassari - Department of Economics and Business

Stefano Mengoli

University of Bologna - Department of Management

Date Written: December 1, 2016

Abstract

We conjecture that household stock-market participation is biased towards local IPOs and affects private firm likelihood to go public and IPO underpricing. We provide evidence stock-market participation significantly increases with IPOs in investor region, but is insensitive to non-local IPOs, and these effects substantially strengthen in remote areas with few local firms. One single IPO in region can raise stock-market participation by additional 7%. Evidence suggests local investors provide abnormal demand in local IPOs and remote private firms can benefit this dedicated local demand. Consistently, the probability of going-public increases with private firm remoteness and remote IPOs show larger, more volatile underpricing. Findings indicate underwriters under-estimate local investor abnormal demand in local offerings.

Keywords: Stock Market Participation, Going Public Decision, IPO Underpricing, Firm Location

JEL Classification: G11; G32; D91; D14

Suggested Citation

Baschieri, Giulia and Carosi, Andrea and Mengoli, Stefano, Stock-Market Participation, the Going Public Decision and the IPO Underpricing (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=2934864 or http://dx.doi.org/10.2139/ssrn.2934864

Giulia Baschieri

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, Bologna 40126
Italy

Andrea Carosi (Contact Author)

University of Sassari - Department of Economics and Business ( email )

Via Muroni, 25
Sassari, Sassari 07100
Italy
+39 079 213036 (Phone)

Stefano Mengoli

University of Bologna - Department of Management ( email )

Via Capo di Lucca, 24
http://stefanomengoli.weebly.com/
Bologna, Bologna 40132
Italy

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