Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect

Nesrine Bouzouita, Jean-François Gajewski () and Carole Gresse
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Nesrine Bouzouita: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Jean-François Gajewski: IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc
Carole Gresse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Our study investigates by which channels IPO underpricing impacts post-listing liquidity. Using a sample of IPOs undertaken on Euronext with diverse mechanisms, we show that when ownership structure is not influenced by initial underpricing, this underpricing still has a positive impact on aftermarket liquidity by a virtuous cycle related to analyst coverage. The analyst coverage purchased by initial underpricing reduces information asymmetry costs and illiquidity in the secondary market. The public information produced by analysts has a statistically more significant impact on adverse selection costs than on the proportion of informed traders in the market.

Keywords: Information asymmetry; Initial underpricing; Ownership structure; Post-listing liquidity; IPO; analyst coverage; secondary-market liquidity (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-01632510v1
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Citations: View citations in EconPapers (8)

Published in Financial Management, 2015, 44 (4), pp.785-810. ⟨10.1111/fima.12085⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01632510

DOI: 10.1111/fima.12085

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