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Why local banking market concentration hinders IPOs and how it can work to issuers’ advantage

Antonios Kallias, Konstantinos Kallias, Guancheng Lu and Song Zhang

Finance Research Letters, 2021, vol. 43, issue C

Abstract: General sample evidence conceals the influence of banking market structure on a fraction of IPO issuers with limited financing options: small non-venture-capital-backed firms (SNVC). Using U.S. county-level data, we reveal that concentrated banking markets contract IPO activity, as they cause SNVCs to incur high underpricing at listing. However, when the size of the local banks is small, both the time to IPO and underpricing decrease. Our evidence infers that, unless banks are organizationally capable of tapping into soft information, they generally use market power for rent extraction, which has important spillover effects on the IPO market.

Keywords: Initial public offerings; Banking market concentration; Soft information; Venture capital (search for similar items in EconPapers)
JEL-codes: G21 G24 G30 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000477

DOI: 10.1016/j.frl.2021.101966

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