Market Integration, Country Institutions and IPO Underpricing

42 Pages Posted: 13 Dec 2018

See all articles by Gianluca Marcato

Gianluca Marcato

Henley Business School - University of Reading

Stanimira Milcheva

University College London

Cheng Zheng

Independent

Date Written: October 6, 2018

Abstract

We extend the IPO literature analysing the role of financial market integration in the development of IPO markets and the pricing of newly listed stocks. Using a hierarchical linear model, we show that differences in underpricing between markets with high and low financial integration levels are economically significant and may explain the choice of location in the listing process. Firstly, market integration negatively affects the level of IPO underpricing by increasing the importance and efficiency of the financial intermediation process via tradable securities. Secondly, the presence of a deeper market integration has a moderation effect, which weakens the explanatory power of country institutions in the cross-country variation of IPO underpricing. Finally, we suggest a hierarchical structure be assumed for the modelling of cross-country IPO studies with heterogeneous country characteristics. Our results are robust to alternative measures of financial integration and several model specifications.

Keywords: Financial Market Integration, IPO Underpricing, Country Institutions, Hierarchical Linear Modelling, Foreign IPOs

JEL Classification: G2, G3, F3

Suggested Citation

Marcato, Gianluca and Milcheva, Stanimira and Zheng, Cheng, Market Integration, Country Institutions and IPO Underpricing (October 6, 2018). Available at SSRN: https://ssrn.com/abstract=3262229 or http://dx.doi.org/10.2139/ssrn.3262229

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
Department of Construction and Project Management
London, London WC1E 7HB
United Kingdom

Cheng Zheng (Contact Author)

Independent ( email )

No Address Available

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