Urban Economic Openness and IPO Underpricing

Posted: 14 Mar 2018

See all articles by Gianluca Marcato

Gianluca Marcato

Henley Business School - University of Reading

Stanimira Milcheva

University College London

Cheng Zheng


Date Written: March 12, 2018


This paper represents a first attempt to employ a macroeconomic approach to explain the high and varying IPO underpricing within a single emerging market. We examine the empirical impact of trade openness on the short-run underpricing of initial public offerings (IPOs) using city-level data. Particularly, we argue that urban economic openness (UEO) has a significant impact on the productivity and on prices of both direct and indirect real estate due to productivity gains of companies in more open areas. This in turn positively affects the firm's profitability, enhancing the confidence in local real estate markets and future company performance, hence decreasing the uncertainty of the IPO valuation. As a result, issuers have less incentive to underprice IPO shares. We use a sample of Chinese real estate companies IPOs, which offer a suitable laboratory thanks to their strong geographic investment patterns focused locally and a country, with a higher heterogeneous openness across regions. Controlling for traditional firm-specific characteristics used for developed markets and Chinese-related features (i.e. listing location and state ownership), we find the evidence that companies investing in economically more open areas experiences loss IPO underpricing. Our results show high explanatory power and are robust to different specifications.

Keywords: Ipo Underpricing; Urban Economic Openness; Real Estate; China

Suggested Citation

Marcato, Gianluca and Milcheva, Stanimira and Zheng, Cheng, Urban Economic Openness and IPO Underpricing (March 12, 2018). Journal of Real Estate Finance and Economics, Vol. 56, No. 3, 2018, Available at SSRN: https://ssrn.com/abstract=3138856

Gianluca Marcato

Henley Business School - University of Reading ( email )

Department of Real Estate & Planning
Reading, RG6 6UD
United Kingdom
+44 (0)118 3788178 (Phone)
+44 (0)118 3788172 (Fax)

Stanimira Milcheva

University College London ( email )

1-19 Torrington Place
Bartlett School of Sustainable Construction
London, London WC1E 7HB
United Kingdom

HOME PAGE: http://www.stanimilcheva.com

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