Stock-Market Participation, the Going Public Decision and the IPO Underpricing
68 Pages Posted: 20 Mar 2017 Last revised: 16 Jul 2019
Date Written: December 1, 2016
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: Suggested Citation