Underpricing, Share Retention, and the IPO Aftermarket Liquidity

International Journal of Managerial Finance, Forthcoming

34 Pages Posted: 31 May 2005

See all articles by Mingsheng Li

Mingsheng Li

Bowling Green State University - College of Business Administration

Steven Xiaofan Zheng

University of Manitoba - Asper School of Business

Melissa V. Melancon

affiliation not provided to SSRN

Abstract

We test how underpricing and the proportion of shares retained by the pre-IPO owners (share retention) affect the IPO aftermarket liquidity. Our results show that initial return is positively related to turnover and negatively related to percentage spread. These relationships are significant even after controlling for other factors, supporting Booth and Chua's (1996) liquidity theory. We also find that the pre-IPO owners' retention rate is positively related to turnover and negatively related to percentage spread. This suggests that high retention rates attract more trades, provide quality assurance, and improve IPO aftermarket liquidity.

Keywords: Initial public offerings, share retention, liquidity, spreads

JEL Classification: G12, G14

Suggested Citation

Li, Mingsheng and Zheng, Steven Xiaofan and Melancon, Melissa V., Underpricing, Share Retention, and the IPO Aftermarket Liquidity. International Journal of Managerial Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=731403

Mingsheng Li (Contact Author)

Bowling Green State University - College of Business Administration ( email )

Bowling Green, OH 43403
United States

Steven Xiaofan Zheng

University of Manitoba - Asper School of Business ( email )

Department of Accounting and Finance
Winnipeg, Manitoba R3T 5V4
Canada
204-474-7933 (Phone)

Melissa V. Melancon

affiliation not provided to SSRN

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