Are Share Price Levels Informative? Evidence from the Ownership, Pricing, Turnover and Performance of IPO Firms

Abstract

We ask whether a firm's choice of IPO price is informative in the sense that it relates systematically to the firm's other choices and characteristics. We find that both institutional ownership and underwriter reputation increases monotonically with the chosen IPO price level. We also find that the relationship between IPO price and underpricing is U-shaped. In contrast, post-IPO turnover displays an inverted U-shaped relation to IPO price. Moreover, firms choosing a higher (lower) stock price level experience lower (higher) mortality rates. Our results are robust to controls for market liquidity and firm size, and for partial adjustment of IPO prices based on pre-market information.

Keywords: Share price level, stock splits, initial public offerings, ownership structure, investment banking, investor behavior

JEL Classification: G12, G14, G24, G32