Initial Public Offerings and the Firm Location

62 Pages Posted: 20 Mar 2017

See all articles by Giulia Baschieri

Giulia Baschieri

Ca Foscari University of Venice - Department of Management

Andrea Carosi

Università degli Studi di Sassari - Department of Economics and Business

Stefano Mengoli

University of Bologna - Department of Management

Date Written: March 18, 2017

Abstract

The firm geographic location matters in IPOs because investors have a strong preference for newly issued local stocks and provide abnormal demand in local offerings. Using equity holdings data for more than 53,000 households, we show the probability to participate to the stock market and the proportion of the equity wealth is abnormally increasing with the volume of the IPOs inside the investor region. Upon nearly the universe of the 167,515 going public and private domestic manufacturing firms, we provide consistent evidence that the isolated private firms have higher probability to go public, larger IPO underpricing cross-sectional average and volatility, and less pronounced long-run under-performance. Similar but opposite evidence holds for the local concentration of the investor wealth. These effects are economically relevant and robust to local delistings, IPO market timing, agglomeration economies, firm location endogeneity, self-selection bias, and information asymmetries, among others. Findings suggest IPO waves have a strong geographic component, highlight that underwriters significantly under-estimate the local demand component thus leaving unexpected money on the table, and support state-contingent but constant investor propensity for risk.

Keywords: IPO, Going Public Decision, Underpricing, Long-run Under-performance, Firm Location

JEL Classification: G10; G14; G32; G24

Suggested Citation

Baschieri, Giulia and Carosi, Andrea and Mengoli, Stefano, Initial Public Offerings and the Firm Location (March 18, 2017). Department of Management, Università Ca' Foscari Venezia Working Paper No. 2016/13, Available at SSRN: https://ssrn.com/abstract=2936000 or http://dx.doi.org/10.2139/ssrn.2936000

Giulia Baschieri (Contact Author)

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe, Cannaregio 873
Venice, 30121
Italy

Andrea Carosi

Università degli Studi di Sassari - Department of Economics and Business ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

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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