The Decision to Go Public and the IPO Underpricing with Locally Biased Investors

63 Pages Posted: 20 Mar 2017 Last revised: 10 Nov 2020

See all articles by Giulia Baschieri

Giulia Baschieri

University of Bologna - Department of Management

Andrea Carosi

University of Sassari - Department of Economics and Business

Stefano Mengoli

University of Bologna - Department of Management

Date Written: November 1, 2020

Abstract

We provide new evidence that local investors are peculiarly biased towards local IPO stocks. Taking the well-known investor preference for local stocks a step further, we contribute by showing that local IPOs boost stock market participation far more intensely than local listed firms. Interestingly, the effect is driven by individuals born and raised in the region, having zero effect for those who have moved to the area. Consistent with underwriters significantly under-estimating the local investors’ demand in local IPOs, the probability of a private firm to go public, the IPO underpricing and the cross-sectional volatility of IPO initial returns, increase in remote firms where the local investors’ demand in local IPOs is particularly high. Overall, our results suggest that local investors are crucial for the IPO decision.

Keywords: Stock Market Participation; Going Public Decision; IPO Underpricing; Investor Bias

JEL Classification: G11, G32, D1

Suggested Citation

Baschieri, Giulia and Carosi, Andrea and Mengoli, Stefano, The Decision to Go Public and the IPO Underpricing with Locally Biased Investors (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=2934864 or http://dx.doi.org/10.2139/ssrn.2934864

Giulia Baschieri

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna, Bologna 40126
Italy

Andrea Carosi (Contact Author)

University of Sassari - Department of Economics and Business ( email )

Via Muroni, 25
Sassari, Sassari 07100
Italy
+39 079 213036 (Phone)

Stefano Mengoli

University of Bologna - Department of Management ( email )

Via Capo di Lucca, 24
http://stefanomengoli.weebly.com/
Bologna, Bologna 40132
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
118
Abstract Views
965
rank
291,188
PlumX Metrics