Direct Listing or IPO?

Abstract

A direct listing (DL) unbundles underwriting and capital-raising in the going-public process. This paper shows that initiations of U.S. DLs have spillover effects that reduce underpricing costs in the IPO market, particularly for firms less subject to informational frictions. DL caters to later-stage firms’ desire for public trading at lower costs: compared with IPO firms, DL firms are larger and older, incur lower underpricing costs, grow more slowly, and exhibit better long-run performance. The results suggest that the U.S. DL innovations reduce intermediary market power in both the DL and IPO markets and improve public market access for later-stage firms.

Keywords: Direct Listing, Financial Innovation, Market Structure, Investment Banking, Adverse Selection

JEL Classification: G24; G32