A comparison of direct listings and IPOs

Contemporary Accounting Research

49 Pages Posted: 28 Dec 2023 Last revised: 8 Mar 2024

See all articles by Anna Bergman Brown

Anna Bergman Brown

Clarkson University

Donal Byard

City University of New York (CUNY) - Stan Ross Department of Accountancy

Jangwon Suh

CUNY Queens College

Date Written: December 22, 2023


Initial Public Offerings (IPOs) and Direct Listings (DLs) offer two different mechanisms for firms to go public. In contrast to IPOs, DLs do not employ an underwriter or raise new capital. Using a sample of IPOs and DLs on major stock markets in the European Union (E.U.), we document that firms that choose to go public via DLs are larger, more profitable, and less levered, on average, than IPO firms. These pre-listing differences suggest that DL firms should be less risky than IPO firms; however, controlling for this selection effect, we find that DLs have higher aftermarket price volatility than IPOs. This is consistent with some policymakers’ concerns that, because they lack an underwriter, DLs expose investors to higher risk than IPOs in the immediate post-listing period. We show that this heightened price volatility persists, on average, for the first 20 trading days after listings, and is larger in industries where listed peer firms provide relatively low-quality disclosures. Our results provide new evidence regarding the types of firms that choose to list via DLs versus IPOs and the riskiness of IPOs versus DLs in the immediate postlisting period; additionally, our results are consistent with underwriters improving the quality of information available to investors for IPO firms in the pre-listing period.

Keywords: Direct Listings, Initial Public Offerings, Price Volatility, Peer Firm Disclosure Quality, Value Relevance of Accounting Disclosures

JEL Classification: G30, G38, M40, M48

Suggested Citation

Brown, Anna Bergman and Byard, Donal and Suh, Jangwon, A comparison of direct listings and IPOs (December 22, 2023). Contemporary Accounting Research, Available at SSRN: https://ssrn.com/abstract=4673783 or http://dx.doi.org/10.2139/ssrn.4673783

Anna Bergman Brown

Clarkson University ( email )

United States

Donal Byard (Contact Author)

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3187 (Phone)
646-312-3161 (Fax)

Jangwon Suh

CUNY Queens College

Flushing, NY 11367
United States

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